Lower interest rates don’t necessarily mean a rise in loan demand. Even as deposit growth turned bullish, the growth rate in credit offtake from banks has seen a big decline in the current year. With the drought situation in the country threatening to hit GDP growth, experts are forecasting further decline in credit demand in the coming months.

As per the latest figures of the Reserve Bank of India, deposits are growing at the rate of 21.8 per cent now (till July 31) as against 20.6 per cent last year. On the other hand, credit growth has decelerated to 15.8 per cent as against 25.6 per cent last year. In absolute terms, deposits increased by Rs 156,596 crore while credit offtake was down by Rs 111,972 crore.

Bankers now say as potential drought would negatively impact GDP by 0.5 per cent to 1 per cent, credit growth would slow down to 14 per cent from the 16 per cent currently estimated. “Rural demand would be the first to slow down, thus impacting agriculture and retail loans from rural and semi-urban areas. However, agriculture loans form only 13 per cent of the total loan book of banks, hence direct impact will be very limited. We expect the biggest impact of the drought to be on the asset quality of banks. The rural economy, on expectations of a second farm waiver package, would pose a moral hazard risk for banks’ recovery efforts,” said Praveen Agarwal, banking analyst, Enam Research.

According to Citi India economist Rohini Malkani, overall trends in bank credit still remain lacklustre with the year-on-year growth at 15.8 per cent. Incremental credit during April 1-July 31 was Rs 31,500 crore against Rs 62,300 crore in the same period last year.

... contd.