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Credit growth at pre-recession levels, RBI should go for another rate cut

Author: Sunnam Bharath Kuma/Wednesday, August 14, 2019/Categories: Exclusive

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Credit growth at pre-recession levels, RBI should go for another rate cut

The buzz around liquidity crunch and a lethargic credit growth in India has become shriller in the recent past. The Reserve Bank of India (RBI) thinks the system has surplus liquidity, but the real picture is totally different. India Bank Credit to commercial sector, which is seen as one of the leading indicator to interpret the health of the domestic economy has raised the red flags. According to the weekly statistical supplement released by the RBI, bank credit to commercial sector recorded a negative growth most of the times (see chart).  

The overall credit growth in India has registered a moderate upside in 2018 but it still remains at a historic low. The data from the RBI shows that the total bank credit to commercial sector has grown at a CAGR of 13.07% from post-recession period of July 2009 to July 2019, the rate of growth has slumped to CAGR of just 9.64% during the previous three years. Surprisingly, the credit growth to the services sector which normally doesn’t attract investors attention has decelerated to just 13% in June 2019 compared with 23.3% during the similar period previous year.

A pre-recession credit growth level certainly demands an additional stimulus programs and further rate cuts by the RBI, which should bring relief to the sector. (The author is a fundamental research analyst with Karvy Forex & Currencies)


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