Retail Small Loans Aid September Loan Recovery

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Outstanding bank loans in September. gone up 71,490 crore from the previous month, in sharp contrast to August when it was down 36,000 crore monthly.

In a year-on-year comparison, however Bank loan rose only 5.8% in September, compared to an 8.2% growth in September 2019.

The Reserve Bank of India’s sectoral lending data released on Friday said the surge in bank lending was driven by personal loans, the service sector, and agriculture and related sectors.

In terms of personal loans, home purchase loans switched 10,300 crore and other personal loans grew 12,400 crore from the previous month. In the service sector, loans to non-bank lenders switched sequentially 5,800 crore to 8.02 trillion.

While outstanding corporate loans decreased, loans to micro and small businesses increased 22,600 crore from the previous month, indicating that much of the government’s loan guarantee program loans were extended during the month.

“September incremental loan growth was with 71,500 crore, from an offspring of 36,000 crore in August. This leap was visible in all segments, which suggests that the backlog in manufacturing was widely felt. The growth in lending to MSMEs has been particularly encouraging, “said Soumya Kanti Ghosh, chief economist at the State Bank of India.

In May the government had the 3 trillion emergency credit line guarantee program that provides 100% loan guarantee to all MSMEs affected by the slowdown caused by the coronavirus pandemic.

The government claims that banks have loans of approx 1.86 trillion to 5 million business units under the program. Loans worth more than 2.7 million MSME units 1.32 trillion by September 29th.

Banks have taken various measures, including holiday deals, to revive credit growth, which is currently at several decades lows due to the pandemic. The government has also instructed banks to cut the compound interest waiver on loans up to. to introduce 2 crore for the six month credit moratorium period ending August 31. The move that precedes the Christmas season should fuel consumer demand.

While bankers expect credit growth to climb to 8% by the end of March, rating agencies like Crisil say FY21 is likely to be a dissolute year.

Crisil expects the banking system’s credit growth to decline to more than a decade old lows of up to 1% in FY21.

“We assume that the retail segment will grow in the second half of the year, as there is more clarity about the one-off restructuring issue. Lending to SMEs could expire after the guarantee scheme expires. Bank lending to NBFCs (non-bank financial firms) could also attract, “said Madan Sabnavis, chief economist at Care Ratings Ltd.

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