The Reserve Bank of India’s ‘Report on Trends and Progress of Banking in India’ paints a smart picture of credit growth, with the consolidated balance sheets of Indian commercial banks expanding by double digits after a gap of seven years. While at first this would be cause for cheer, the growth came against the backdrop of a pandemic-hit year when economic activity, including credit demand, declined. However, the pace of credit has been sustained in the current financial year with credit growth reaching a decade high in the first half. And in the fortnight to 2 December, credit rose 17.5% from a year earlier. Yet, disappointingly, deposit growth lagged behind, growing only by 9.9% during the period. With concerns about retail inflation and price stability reducing confidence in savers’ real returns as well as saving, banks have found themselves redoubled efforts to increase deposits to meet the demand for funds. felt the need. Lenders have to avoid finding themselves relatively short of low-cost capital to lend, especially when the economy is facing the headwinds of a global recession.
With credit growth picking up, RBI also urged banks to guard against loan slippages. The bank’s balance sheet has improved over the years, thanks to the central bank’s asset quality review, mandate for identification of stressed assets and write-offs by commercial banks as well as debt recovery under the Insolvency and Bankruptcy Code. is for Bank caution is beneficial as the sector cannot turn a blind eye to the bad loans situation, especially after gross non-performing assets (NPAs) – which impact banks’ ability to lend – “peaked” in 2017. Sees a decline from -18″ to 5% in September 2022. Due diligence and sound credit appraisal of banks on borrowers will help keep NPAs under control, while credit growth helps fund capital expenditure (capex). The Chief Economic Advisor had noted this month that private capex had reached Rs 3 lakh crore in the first half of the year and if this pace is maintained, the full-year figure would be the highest in the last few years. Worryingly, he also indicated that government capex may not need to keep pace to give space to private players to borrow and invest. However, given the constraints of fiscal discipline, the government should maintain the momentum on capex as private capex growth may take some time to find sustainability. With industrial production still on a bumpy ride as it contracted in two of the seven months, policy makers must ensure credit flows and all-round capital expenditure.