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PSBs outshine private peers in incremental loan growth


Mumbai: State–run banks stepped up to the plate in keeping the economy humming by raising credit sanctions even as private sector got into a shell due to risk aversion that squeezed many businesses. The share of state-run banks in incremental credit growth rose to 52.8 percent in Februacy, from 39.7 percent in August.

“The slowdown in credit growth was spread across all bank groups, especially private sector banks,” RBI said in a report released on Thursday. “Credit growth of public sector and foreign banks remained modest, even as there has been some uptick in credit by public sector banks.”

The government outreach programme organised in October last year to push credit in the economy may have contributed to higher loan growth for PSBs. Banks had disbursed over Rs 2.5 lakh crore of loans by conducting outreach camps and loan meals during the festive period.

Private sector banks also charged higher rates to their clients. Data showed that while foreign banks dropped rates on fresh rupee loans by 121 basis points, public sector banks were a close second with a drop in rates of nearly 83 basis points. Private peers lagged behind as they only passed on rate benefits to customers by 42 basis points.

RBI data shows that credit off take during fiscal year 2020 was muted with growth at multi-year lows of 6.1% less than half of the 14.4% growth clocked in FY19. Corporate loan growth continued to be muted and slid to nearly 1% as of February 2020. Lending to large industries was also down to 1% while MSME loan growth moved in positive territory at 4% after being in the red for most part of the fiscal year gone by. Retail loan growth too saw a sharp fall, down nearly 300-400 bps from peak levels. And, all this is expected to fall further due to the disruption caused by COVID-19.

“The impact of Covid-19 on the overall slowdown in credit growth is difficult to quantify as the intensity of the pain on overall retail and SME segments is hard to gauge,” said MB Mahesh of Kotak Institutional Equities. “There can be second order impact of the slowdown in select sectors on growth and asset quality behavior in other sectors. However, it is safe to assume that Covid-19 will lead to a sharp decline in overall credit growth in the economy.”


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