Visit our new website: worldnews.easybranches.com

Indian Credit growth dips again but bond market comes to rescue

  • Mon, 20 Mar 2017 13:44

One of the big mysteries in the Indian economy currently is the persistently low credit growth, which fell further after the government’s demonetisation drive in November.
After struggling along at just under 10 percent for almost a year, credit growth fell to under 5 percent starting November, according to fortnightly data released by the Reserve Bank of India (RBI) the value of loans in India increased 4.1 percent year-on-year in the two weeks to March 3rd 2017. Loan Growth in India averaged 12.41 percent from 2012 until 2017, reaching an all time high of 18.70 percent in April of 2012 and a record low of 4.10 percent in March of 2017.

According to Nomura true credit growth is closer to 7 percent. That’s not to say that it isn’t weak. Just not as weak as what the bank credit data suggests.
RBI credit data (3.7 percent year-on-year growth in January ’17) does not capture the impact of bond substitution and State Electricity Board (SEB) loan conversions. The corporate bond book has been growing at 16-18 percent year-on-year for the past 12 months, and Rs 1.7 lakh crore of SEB loans have been converted into bonds under UDAY scheme over the past 6-7 months. Adding this up, they estimate that overall credit growth is 6.7 percent year on year and industry and services credit growth is 5.6 percent year on year (1 percent contraction as per RBI).
While saying that growth in bank loans may be understating the actual demand for credit in the economy, Nomura goes on to say that there are fundamental reasons for subdued credit demand. This includes the deleveraging of corporate balance sheets.
Three sectors – infrastructure, metals and textiles – contributed 30-25 percent of total incremental credit in the financial year (FY) 2007-08 to FY14 period, when bank credit was growing at 17 percent year on year. Adjusting for these sectors, credit growth was closer to 12-13 percent. Credit demand from these sectors (excluding SEBs) is now down to zero, which is bound to impact overall demand for loans.Ambit Capital  points out that banks have lost nearly 5 percent points in market share to bond markets over the past two years. This was partly because of the rate advantage in the markets and this shift from bank loans to bond market will only acclerate thereby pressurising the Net Interest Margin of banking system.

The post Indian Credit growth dips again but bond market comes to rescue appeared first on ValueWalk.

ValueWalk

Tags


Harvard Business Review

Related Stories

China's Great Wall eyes Fiat Chrysler bid
  • Mon, 21 Aug 2017 16:34

The Chinese SUV maker says it is interested in buying Fiat Chrysler Automobiles. BBC News - Business

Vontobel to buy eastern European private banking portfolio from Notenstein
  • Mon, 21 Aug 2017 15:27

ZURICH (Reuters) - Swiss bank Vontobel has agreed to buy a roughly 2 billion Swiss franc ($ 2.1 billion) portfolio of eastern European private bankin...

Crawford Falconer takes up post as UK's top trade negotiator
  • Mon, 21 Aug 2017 13:29

Crawford Falconer is expected to "build bridges" on trade before Brexit is formally agreed. BBC News - Business

Indian court grants woman divorce over lack of home toilet
  • Mon, 21 Aug 2017 12:21

The court said forcing the woman to use open fields amounted to cruelty. BBC News - World

Evoluent VerticalMouse C Series Review:
  • Mon, 21 Aug 2017 11:29

I have been using a traditional mouse for years – 8-10 hours a day, five days a week – without ever caring about ergonomics. I would often...

If you're thinking of starting a business venture - think again
  • Mon, 21 Aug 2017 10:26

ENTREPRENEURSHIP isn't for everyone - no matter how glamourous or fulfilling it's been portrayed to be - four serial entrepreneurs told The ...

The Bundesliga kicks off again on Friday but can anyone stop Bayern Munich?
  • Mon, 21 Aug 2017 09:23

Bayern Munich start the season on Friday depleted through injuries, but pre-season wobbles and changes in personnel will at least give their rivals so...

“Across the Pacific Performed by Red Sorghum” Comes to The Orleans Showroom Sept. 12
  • Mon, 21 Aug 2017 08:30

Qingdao Song and Dance Theatre presents “Across the Pacific performed by Red Sorghum,” an award-winning Chinese dance drama, at The Orleans Showro...

FTSE chief executives' median pay 'down almost 20%'
  • Mon, 21 Aug 2017 08:28

Deloitte says its annual survey of executive pay suggests policies to limit bosses' pay are working. BBC News - Business

Bungled repairs and new concerns at the tallest US dam
  • Mon, 21 Aug 2017 07:34

Remember the crisis earlier this year at the Oroville Dam? The overflow from California’s winter of heavy rain threatened to overpower our count...

Paris police evacuate migrant camp (again)
  • Mon, 21 Aug 2017 00:34

Paris police on Friday announced the evacuation of a migrant camp in the city's 18th arrondissement. The Local

Heineken-Punch Taverns pub deal cleared by CMA
  • Mon, 21 Aug 2017 00:29

The brewer avoids an in-depth investigation of its takeover of Punch by offering to sell off some pubs. BBC News - Business


News Categories