The RBI is hoping that banks will divert the surplus liquidity to lend to productive sectors, but will they? Because, in the fortnight ended March 13, the non-food credit of all the scheduled commercial banks was ₹10,080,101.2 crore (₹10.03 lakh crore), which was higher by 0.41% compared to ₹10.04 lakh crore in the previous fortnight ended February 28.

On a month-on-month basis, the non-food credit value grew by 1.11% from ₹1,37,000 crore ₹9.97 crore as of February 14. And, on an annual basis, non-food credit grew by little over 6.09% in mid-March this year, compared to ₹9,501,040 crore (₹9.50 lakh crore).

And experts are expecting that bank credit may see materially slower growth at the end of March 2020. “Select management commentary and our understanding of the sector suggest that a significant proportion of disbursals occur towards the end of the quarter,” say research analysts Darpin Shah and Aakash Dattani, who work with HDFC Securities’ institutional research team.

The duo is of the view that Coronavirus-related disruptions will impact this. “Further, the dip in growth is likely to be broad-based,” the duo noted. “Personal loan growth, which has contributed to much of the growth seen over FY19 and FY20 is likely to slow considerably.”

While decoding RBI’s sectoral credit data, up to end of February, Shah and Dattani in their April 1 note highlighted that within industrial credit, large industries (83% of total industrial credit) dragged overall growth, growing just 70 basis points annually compared to 2.8% annual growth in January 2020.

“Several sectors such as gems and jewellery (-16.8% annually), all engineering (-4.8%), metals and metal products (-10%) and textiles (-6.6%) saw persistent de-growth,” the duo noted. Within infra credit, telecom saw a spurt in growth with 54.3% annual and 3.7% monthly increase, while power and roads’ sector saw an annual de-growth of 2.8% and 1.6% respectively.

And, in the services’ sector lending space, the annual growth in wholesale trade credit was 13.6% at the end of February, compared to 8.6% in January. While retail trade credit growth slumped to an annual 1.2% versus 1.7% a month ago. Similarly, annual credit growth to non-bank finance companies (NBFCs) slowed to 22.3% in February compared to 32.2%in January and 47.5% in February last year. On a month on month basis, bank lending to NBFCs witnessed de-growth of -4.5% in February.

Personal or retail loans, which accounted for 28.4% of the total credit, displayed broad based resilience loans in February. “Growth was visible across sub-segments (credit cards +33%, home loans +17.1% and other personal loans +20.6%),” Shah and Dattani noted. Interestingly, auto loan growth showed an accelerating trend, growing at an annual 10.3% compared to 9.8% in the previous month and just 5.0% in October last year.

As the 21-day lock down disrupts economic activities, the three-month moratorium will provide banks the regulatory olive branch to postpone recognising bad loans and hence making higher provisioning for the same. However, the gloom that the pandemic has brought along will take time to get over. And, with most industries having made a hard stop, the ‘productive on-lending’ that the RBI envisages banks to do with the freed-up liquidity may remain a pipe dream.

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