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    • 4 things to know about bank credit growth in 2018

      Banks play a crucial role in the growth and development of a country’s economy. In fact, it can be said that banks are at the foundation of the economy. Entrepreneurs and businesses borrow money from banks to invest. This investment propels economic growth of the country. Loans also help people to purchase goods and services like houses and automobiles; resulting in the flow of money into the economy.

      In this piece, let’s discuss the growth of loans in the Indian economy in FY2018-19.

  • Highest Loan growth in 5 years

    There has been a firm rise in loan growth for banks as per a report by the Reserve Bank of India. Banks achieved a 15% year-on-year (yoy) growth in November 2018. This was the highest loan growth in as many as five years. Rise in interest rates and tightening of liquidity have helped to propel loan growth.

    Also read: Are the troubles over for the Indian banking sector?

  • Private banks increase market share

    Private sector banks have witnessed a 31% rise in overall loans as of the second quarter of FY2019. This has been partly due to the gradual decline in the market share of Public Sector Undertaking (PSU) banks. The RBI has placed more than a dozen public sector banks under the Prompt Corrective Action (PCA) framework until they nurse back to good health. The tight lending restrictions on public sector banks means that the lending share of private banks is set to increase going ahead.

    Related read: 5 trends to follow on bank interest rates

  • Lending to NBFCs increased by 56%

    Bank loans to Non-Banking Financial Companies (NBFCs) rose by as much as 56% on a yoy basis at the end of October 2018. The outstanding loans to NBFCs stood at Rs. 5.63 lakh crore as on 26 October 2018 compared to Rs. 3.61 lakh crore on 27 October 2017. Loans to NBFCs came to around 7% of the total bank credit of Rs. 80.57 lakh crore. And while lending to NBFCs has grown at a steep pace until now, experts forecast a slowdown in the near future. This is mainly due to significant funding constraints placed on 11 public sector lenders.

    Related read: Why are NBFCs important

  • Credit penetration high in south and western markets

    As for geographical spread of loans, the southern and western markets of India continue to dominate. These markets contributed to 62% of the incremental loans in the first half of fY19. On the other hand, the eastern and northern markets have comparably lower market share at just 8%. Low presence of private sector banks is a major reason for the low level of credit penetration in the north-eastern belt. For example, West Bengal, a fairly large state has just 28% share of private banks compared to 33% in Kerala.

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  • Rs. 66,200 crore

    Bank loans to NBFCs increased to Rs. 5.63 lakh crore in October 2018 from Rs. 4.96 lakh crore in March 2018. This is an increase of Rs. 66,200 crore in absolute terms. Over the past year, these loans have been a shot in the arm for NBFCs since they were finding it quite hard to raise money in the market.

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