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Credit Growth from Industry Remains Tepid
Apr 8, 2016

There has been a pick-up in credit from September onwards. During the period February 2015 to February 2016, bank credit offtake has grown by 11.5%. The growth has been powered by incremental demand from personal loans, agri and services segments. Each of these segments posted double-digit growth during this period.

However, loan demand from industry continues to remain tepid registering single-digit growth of 5.4%. While bank credit intake by the large industry players has witnessed some improvement and recorded a 7% growth in this period, the micro, small and medium industries remain far from recovery. In the past one year, loan demand by micro and small industry grew by a mere 1.7% whereas credit intake by the medium industry players has fallen by a steep 11.1%.

To aid credit growth, the Reserve Bank of India has cut interest rates by 1.5% so far. However, the transmission of rates by banks has been much lower. Hopefully, with the marginal cost of funds based lending rate that comes into effect from April 2016, banks will be in a better position to pass on the rate-cuts. However, more than this, the revival in the broad economy will play a key role in bringing about a more sustainable recovery in credit demand.

Data Source: Livemint, RBI
* For the period February 2015 to February 2016

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