Localized lockdowns: credit decreases in second Covid wave

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The year-to-date (YTD) degrowth in non-food credit has been smaller than in the corresponding period in FY21 since the lockdowns during the second wave of the pandemic were more localized in nature. Banks’ outstanding loans decreased 0.5 percent between March 29 and July 30, 2021, compared to a 1.1 percent dip between March 27 and July 31, 2020. Before the busy season begins with the holiday season, the first half of the financial year usually sees subdued loan growth.

The trend in loan growth was better in the first four months of FY22 than it was in the first four months of the preceding fiscal pre-pandemic year, FY20. Outstanding loans in the banking system fell 0.66 percent between March 29 and August 2, 2019. Typically, loan growth is subdued in the first half of the fiscal year before the busy season begins with the holiday season.

While imposing lockdowns and other movement restrictions harmed disbursements in the first two months of FY22, bankers reported the rebound was quick. Retail disbursements slowed in April and May, according to Sandeep Bakhshi, MD & CEO of ICICI Bank, due to containment measures in place across the country. Bakhshi mentioned that disbursements increased in June and July as limitations were gradually eased. Credit card spending fell in April and May, but rebounded in June, thanks to purchases in categories such as consumer durables, utilities, education, and insurance. ICICI Bank’s retail loan portfolio, excluding business banking, grew by 20.2 percent year over year and was steady sequentially as of June 30, 2021.

Working capital constraints have also been better used. Dinesh Khara, chairman of the State Bank of India (SBI), claimed earlier this month that under-utilization in the bank’s commercial customer group fell to 25% in Q1FY22 from over 30% the previous quarter.

Lenders, on the other hand, have been cautious in their forecasts for full-year credit growth. SBI forecasts 9% growth in FY22, while Khara believes loan growth would be determined by the actual economy. He stated, “We are only waiting for the opportunity to support credit growth, but it will emanate from borrowers and the real economy.”

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