Bank loan growth is lowest in three years as loans remain under Covid Cloud

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The credit slowdown indicates a struggling economy, Bank of America Securities said in a report on Monday. “Declining credit flows indicate a contraction in the economy due to the Covid-19 shock,” the research house said.

Bank of America Securities also assessed the additional credit flow since the start of the Covid-19 crisis. The analysis showed a sharp drop in bank credit flows from one period to the next:

  • Between mid-March and July 17, 2020, the credit flow is 36% lower than last year.
  • Between the end of March and July 17, 2020, the credit crunch is 52.2% greater than that of 2019.
  • Between the end of April and July 17, 2020, a credit of Rs 50,800 crore was taken out, unlike a withdrawal of Rs 44,600 crore last year.
  • Between the end of May and July 17, 2020, the credit flow was contracted by Rs 2,500 crore, unlike the drawdown of Rs 42,300 crore last year.

The report says high real lending rates, adjusted for the basic wholesale price index as an indicator of pricing power, still limit a recovery beyond the Covid-19 shock. “While the nominal MCLR (marginal cost-based lending rate) has fallen 105 basis points since March 2019, when the RBI eased, the real MCLR jumped 44 basis points, inflation by WPI base falling to 0.8% in June from 2.3% in March 2019, ”the report said.

Segmented data

The decline in credit flow is visible in segments such as retailing and bad credit loans to non-bank finance companies, monthly credit data showed.

Among industrial loans, only large companies saw their outstanding loans grow in the first three months of the current fiscal year, according to available data.

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