Despite the government's credit-driven stimulus to help tide over the impact of COVID-19, bank credit growth hit a new low for the second year in a row in FY21 at 5.56 per cent -- the lowest in 59 years, according to an analysis by SBI Research.
Credit offtake in FY21 at Rs 109.51 lakh crore was lower than FY20's when it had clocked a growth of 6.14 per cent -- which was the lowest in as many as 58 years. It was way back in FY1962 when credit growth was lower than this at 5.38 per cent.
Only around Rs 3 lakh crore of the Rs 20 lakh crore stimulus amounting to 11 per cent of GDP was actually used in fiscal stimulus to fight the impact of COVID-19 as the remaining amount was through credit support with no impact on the fiscal numbers of the government.
However, system-wide deposits nearly jumped to 11.4 per cent in the year to Rs 151.13 lakh crore, from 7.93 per cent in FY20, SBI Research said, quoting RBI data.
According to the SBI Research report, FY08 had the best credit and deposit growth on record -- 22.4 per cent growth in deposits and 22.3 per cent jump in credit offtake.
The next two years it fell to around 17 per cent but inched back to 21.5 per cent in FY11. Since then, credit demand has been on a steep southward curve, hitting a 58-year low in FY20 and a still lower 59-year pit in FY21.
The report said credit offtake was hit hard by the pandemic in the first half when the economy was almost closed, and saw some improvement in H2 registering a growth since November.
"But despite this, overall credit growth has plunged to a 59-year low of 5.56 per cent in FY21, compared to 6.14 per cent in FY20," said the report.
The key lockdown months of April and May 2020 was the major reason for the spike in deposits, which grew 11.4 per cent despite a steep fall in interest rates, as against 7.93 per cent in FY20 when it stood at Rs 135.71 lakh crore.
Deposit growth in FY20 was the slowest since FY18, when it had increased by 6.21 per cent.
In FY19, credit offtake was 13.29 per cent while deposits grew by 10.04 per cent.
The report said April and May 2020 saw huge monthly incremental increase in time deposits as people had less options to spend due to the lockdowns.
The report added that this year too there could higher flows in time deposits as most of the states have imposed partial lockdowns.
The risk aversion was so high among both banks and borrowers that they refused to borrow despite interest rate plunging by 107 basis points (bps) during the year -- precisely between February 2020 and February 2021.
Banks' risk aversion had them parking trillions of excess liquidity with the RBI.
When viewed against the backdrop of a plunge in incremental credit flow to the system in FY20, the tepid credit offtake in FY21 growth is starker.
In FY20, incremental credit flow from banks, bonds, and commercial papers plunged 64 per cent to Rs 6.04 lakh crore from Rs 15.82 lakh crore in FY19, on account of the slowdown and high level of risk aversion among bankers.