The bank credit growth to service sectors saw a rise in April, even as most of economic activity remained suspended due to coronavirus-led nationwide lockdown. The banks' credit to non-banking finance companies (NBFC) increased by Rs 5,000 crore in April 2020, according to an SBI Ecowrap report.
Among services, there has been an increase in credit to transport operators by Rs 4,300 crore, and retail traders Rs 6,900 crore in April. However, the credit to retailers plunged to its lowest level since January 2008, from when the data series is available, the report said. The SBI report said that the decline in credit to retail sector may continue with lockdown being extended till June 30.
The sectoral data for April, which accounts about 90 per cent of the total bank non-food credit deployed by 33 Scheduled Commercial Banks (SCBs), indicates that year-on-year (YoY) credit growth has declined in all major sectors. However, incremental credit growth (YTD), except 'persona loans' and 'agriculture", in all other sectors have shown less de-growth compared to last year.
"On yearly basis, credit growth to industry declined to 1.7 per cent (6.9 per cent last year), services to 11.2 per cent (16.8) but on YTD basis credit growth to industry has increased. Within services, there has been an increase in credit to NBFCs, transport operators, retail traders," noted the report authored by Soumya Kanti Ghosh, Group Chief Economic Adviser of State Bank of India.
Though credit to all major industries declined but credit to infrastructure like power, 'iron & steel', 'petro chemicals' and 'petroleum, coal products & nuclear fuels' increased by Rs 23,900 crore in April 2020, the report said.
Generally, agriculture sector credit demand increases in May and June before sowing season, and banks are now disbursing to all the eligible farmers and also issuing Kisan Credit Cards to meet their credit requirements timely, SBI report said.
Banks are also leveraging digital platforms to meet the credit requirement in the retail sector. For corporates, they will require more working capital loans as well as term loans over the medium-term until the growth environment stabilises.
Going forward, sectors such as NBFCs, metal, automobile, power, infrastructure, tyre & tubes, petroleum could be seeking more credit from banks due to enhanced working capital cycle and also medium term uncertainty, the report said. "While the forbearance on repayment of loans provides some cushion to banks on asset quality and provisioning, a prolonged slump would make it more vulnerable," it said.
Meanwhile, deposits in all forms, savings, current and term, increased significantly during successive lockdowns, indicating that customers are using the sanctioned limits during these uncertain times to build up cash.
During lockdown 1, people were apprehensive of spending and turned frugal, the data revealed. In lockdown-2, there was a 25 per cent decline in such bank deposits, but term deposit accrual was very healthy. The situation became critical during lockdown 3 when such deposit growth turned significantly negative, indicating people may have used the initial build up to start spending as they realised that lockdown could be a recurring phenomenon. However, the depletion was only 12 per cent of the deposit build up in lockdown 1 and lockdown 2, indicating significant risk aversion in consumer spending.
In lockdown 4, there has been an increase in deposits again, indicating consumers are uncertain about spending and instead are saving much more in bank deposits. It is also possible that many households may have marginal propensity to consumption closer to zero because many types of spending are less available due to social distancing, report said.
With India going into lockdown 5, the agency believes such consumer savings will continue to surge.
As far as advances are concerned, there was a jump in term loans in lockdown 1, and again in lockdown 4. The increase in cash credit in May might also reflect application of interest as most of the companies have taken moratorium. Thus, such growth in credit component needs to be treated with caution, it said.