Retail credit growth disappoints overall growth in bank credit

As per the published data of Reserve Bank of India (RBI), growth in non-food bank credit decelerated in May 2020 to 6.8 per cent YoY as compared to 7.3 per cent YoY in April 2020. On the sectoral front, growth in credit to the services sector and industries continued to remain flat at 11.2 per cent YoY and 1.7 per cent YoY in May 2020. The credit growth for personal loans slowed down with a noticeable drop in credit to vehicle and housing loans.

Credit growth to the personal sector is tapering down to 10.6 per cent YoY in May 2020 and further, it continued to follow a descending trend that started in February 2020. Spending has taken a hit due to the nationwide lockdown since March 2020 and demand persisted only for essential items and the discretionary. At 43.5 per cent YoY, credit growth in the consumer durables sector remained flat in the month of May 2020 as compared to 43.7 per cent YoY in the month of April 2020. The lower paced credit growth to vehicle loans also contributed to the already weak private consumption.

The deceleration in the overall credit growth suggests that the transmission of the policy rate cut is yet to create demand for credit. RBI had cut interest rates by 115 basis points or 1.15 per cent since February 2020. It seems that the banks are still hesitant to pass on the benefits of cut in repo rate to retail consumers.