Loan growth may take-off as India moves towards digital money

Despite over Rs 12 lakh crore deposits within a month beginning November 9, 2016, credit growth of banks continue to be subdued. 

Since the start of current fiscal year, credit base of banks declined by Rs 2.37 lakh crore – which is the lowest in the past ten years. Year-to-date, it has declined by nearly 3%.

As on November 25, 2016, the credit growth moderated by 6% on an year-on-year (yoy) basis. The outstanding credit base declined by Rs 61000 crore to Rs 72.9 lakh crore.

Many analysts believe that demonetisation will put further pressure in banks credit growth.

Nitin Aggarwal and Renish Patel of Antique Broking said, "We expect credit growth to remain in single digit for FY17 (10% y-y growth in FY16) as capex cycle remains subdued while the demonetization activity may further put pressure on industrial demand in the near term."

Rajat Gandhi, Founder & CEO of Faircent.com said, “The cost of small ticket loans (upto Rs 5 lacs) for banks far surpasses the benefits from it. Although the deposit rates have fallen lately, the hassles involved in KYCs and others processes for such loan approvals do not make them viable for the banking system.”

He continued, “Besides, borrowers are strictly judged on their normal proven income pattern and Cibil scores. There is a very huge segment out there for smaller borrowing needs.”

Many banks have already trimmed their deposit rates in the range of 10-50 basis points during November 2016. For one-year deposits, majority of PSUs like Punjab National Bank, Bank of Baroda, Dena Bank and IDBI Bank will earn interest rates in the range of 7-7.30%.

As per Gandhi, this will put additional pressure on the interest rates charged by the traditional lenders. Globally such platforms have a large captive market.

However, Faircent is positive on the digitisation move, which it expects will be a good helping hand for banking sector.

He said, “We are positive that the recent boost to non-cash payments will increase digitisation in every area of financial services including lending. With proper awareness and regulations, the sector can see an exponential growth in coming years and reduce a lot of burden from the banking sector too.”