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Bank Credit Growth Moderated To 7.1%

Public sector banks (PSBs) with about 70 per cent of the market share in Indian banking have an onus of supporting the Indian economy and fostering its economic development.

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Bank credit growth (YoY) moderated from 12.9 per cent in April 2019 to 7.1 per cent as on December 20, 2019, says the Economic Survey tabled in Parliament by Finance and Corporate Affairs Minister Nirmala Sitharaman.

According to the Survey, the financial flows to the economy remained constrained as credit growth declined for both banks and non-banking financial companies (NBFCs.) The capital to risk-weighted asset ratio of scheduled commercial banks (SCBs) increased from 14.3 per cent to 15.1 per cent between March 2019 and September 2019.

After significant decline since 2014-15, India's external liabilities (debt and equity) to gross domestic product (GDP) increased at the end of June 2019 primarily by an increase in FDI, portfolio flows and external commercial borrowings (ECBs), notes the Survey.

Repo rate was cut by 110 basis points in four consecutive MPC meetings in the financial year due to slower growth and lower inflation. It was, however, kept unchanged in the fifth meeting held in December 2019.

In 2019-20, liquidity conditions were tight for the initial two months; but subsequently, it remained comfortable.

Gross non-performing advances ratio remained unchanged for SCBs at 9.3 per cent between March and September 2019 but increased slightly for NBFCs from 6.1 per cent in March 2019 to 6.3 per cent in September 2019.

Public sector banks (PSBs) with about 70 per cent of the market share in Indian banking have an onus of supporting the Indian economy and fostering its economic development.

The Survey observes that there is disproportionate dwarfism of the Indian banks when compared to the size of the Indian economy. For India to march in its goal of becoming a $5trillion economy, PSBs - the dominant banks in our banking system - need to become efficient.

The economy needs PSBs to perform to their fullest potential and support economic growth rather than pullback lending, which has a detrimental effect on growth and welfare.

The Survey expresses that if Indian banks were proportionately large in relation to the size of the Indian economy, India should have at least six banks in the global top 100 than just the current largest PSB- State Bank of India (SBI)-which is the 55th largest bank globally.

The survey notes that despite nationalisation a significant portion of the poor remained unbanked till 2014. Financial inclusion, in large part, happened in August 2014 through the Pradhan Mantri Jan Dhan Yojana (PMJDY), the first week of which saw more than 18 million bank accounts - a record in the Guinness Book of World Records.

The Economic Survey notes that the growth in digital transactions has been significant. The use of direct benefit transfers has increased exponentially over the last five years, has helped to bring both credit and deposits into the banking system across all geographies (rural, semi-urban, urban and metropolitan).

The high elasticity across all geographies clearly demonstrates the opportunity that exists for Indian banks to benefit from the greater use of DBT by the Government. There are possibilities for the Indian banking sector to grow proportionate to the scale of the Indian economy. The new programmes have resulted in a surge of individuals and businesses being brought into the formal economy.

The Economic Survey also observes that over Rs 4,30,000 crore of taxpayer money is invested as the government's equity in PSBs. In 2019, every rupee of taxpayer money is invested in PSBs, on average, lost 23 paise. The state of the banking sector in India, therefore, needs urgent attention. 


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public sector banks banking credit growth