Credit Growth Weakens To 5-year Low In Second Quarter Of 2020

Mumbai, November 27: Bank credit growth has weakened to 8.1 per cent year-on-year (Y-o-Y) from 11-12 per cent Y-o-Y witnessed in the past many quarters, says a study by Motilal Oswal Financial Services (MOFS). 

As banks account for only an estimated 56 per cent of the total debt to the non-government non-financial (NGNF) sector in the Indian economy, the MOFS prepared a quarterly estimate of NGNF debt in the country. This includes the five sources of non-banking lenders, namely, non-banking finance companies (NBFCs), housing finance companies (HFCs), corporate bonds (CBs), commercial paper (CP) and external commercial borrowings (ECBs).

Post adjusting inter-financial transactions, the estimates showed that NGNF debt grew 9.3 per cent (Y-o-Y) in second quarter of FY2020, marking the slowest growth in almost five years. “Slower growth by banks, NBFCs, HFCs and CPs explain the low credit growth last quarter, which was only partly offset by bonds and ECBs. Further, while household debt continued to grow at robust >15 per cent YoY, non-financial corporate (NFCs) debt increased only 5.4 per cent YoY in 2QFY20, marking the slowest growth in at least eight years,” pointed out the study. 

That said, the household debt has moved to a record high of 33.6 per cent of GDP, while NFC debt was at 13-quarter low of 46.8 per cent of GDP last quarter. The findings of these trends point out that a drastic slowdown in industrial activity in 2QFY20 is so far confirmed.  “Consequently, we believe that industrial real gross value added (GVA) will post its first decline in 2QFY20 since FY13 and real investments will also decline for the first time in five years. Real GVA/GDP growth, thus, is expected to weaken further to 4.3 per cent/ 4.5 per cent YoY in 2QFY20 vis-à-vis ~5 per cent in 1QFY20,” says Nikhil Gupta, Research Analyst, MOFS.