- Credit growth jumped 11 per cent during lockdown from Rs 92.11 lakh crore to Rs 102.85 lakh crore
- Banks pushed credit despite an environment of uncertainty; companies took unutilised limits to create buffers
- Banks push for March-end disbursal to show higher credit growth
- Only credit card and pre-approved personal loans lines were open for banks customer to utilise credit
Bank credit between March 27 and April 10, which came under the first 21 days of nationwide lockdown, shows a staggering 11 per cent rise of Rs 10.73 lakh crore.
The stupendous growth in bank credit begs the question if banks were more focused on improving their fiscal numbers before closure of accounts on March 31 than following due diligence and risk analysis before handing out loans, since the economy was clearly headed for a long shutdown!
During the fifteens day of lockdown, the outstanding bank credit jumped from Rs 92.11 lakh crore to Rs 102.85 lakh crore. But, the double digit growth seems too good to be true.
The nationwide lockdown was announced on March 25. Everything was shut immediately with no banking operations in the first few weeks. Banks were triggering their business contingency plans (BCPs), disinfecting headquarters, branches and other offices and preparing for crowd management strategy, social distancing.
So what explains this huge rise in the bank credit?
Experts suggest that bankers must have pushed the corporates to utilise their indrawn limits for 2019-20 so that they could show higher credit growth at the end of the financial year.
"We actually request corporate to draw the remaining amount during the month of March," says a banker.
There were actually two working days (March 30 and 31) in March to take the indrawn limits. Many suggest the banks released most of the money during these two days.
Rise in bank credit in March is not uncommon, since it's the end of financial year. An analysis of last three years show a pattern of 10-12 per cent increase in credit in the last week of March and the first week of April. But the situation this time was not normal.
Global economies were staring at recession with coronavirus spreading in Europe and US. There was also a threat to India's growth both from coronavirus outbreak and lower global growth.
Clearly, the banks pushed credit despite an environment of uncertainty. The companies must have taken the unutilised limits to create buffers for likely impact of Covid.
In hindsight, the impact has been much severe as lockdown has been extended twice and the fiscal stimulus is also not in sight. The exit from lockdown is also going to be staggered with the entire country divided in three zones of red, orange and green.
The rise in credit feels all the more dubious, since banks are more careful in granting credit these days. They have strengthened their credit approval process.
Moreover, there were only two products where customers could avail credit facility during the period banks saw credit rise. The two products were the limit credit card holders could spendand pre-approved personal loans.
"The pre-approved personal loans are digitally enabled. The money is immediately credited to savings account and there is also a facility to withdraw money through ATMs," says Ashutosh Khajuria, executive director at Federal Bank.
Meanwhile, there are others who feel the higher credit growth could be due to moratorium on term loans announced by the RBI for borrowers of retail and term loans.The moratorium was for three months of March, April and May. Some suggest the deferment of EMIs was included in the outstanding loan, which pushed the total outstanding loans of banks without releasing any fresh credit.