Credit Demand Shrinks To 3.6% In Q1 from 42.6%, Hit Hard By COVID 2nd Wave

by GoNews Desk 2 years ago Views 3807

Credit Demand Shrinks Hit Hard By COVID 2nd Wave
The latest RBI quarterly Bank Lending Survey (BLS) revealed that the overall loan demand for all sectors shrank from 42.9% (in Q4 2020-21) to 3.6% (Q1 2021-22).

This followed a gradual increase in loan demand throughout the year 2019-20 until the first major hit of the coronavirus pandemic lockdowns in Q1 2020-21, when loan demand had slumped to almost 30% in the negative territory.

The present fall in loan demand in Q1 (2021-22) is attributed in the report to “major disruption in economic activities […] witnessed in the wake of the second wave of the pandemic”.

Retail, Services, Mining and Quarrying, were the three sectors with the greatest fall in demand for credit from Q4  to Q1 . The expectation by the respondents for overall loan demand in this quarter, on the other hand, was 50%. In the previous BSL report (15th round), RBI had stated that “Bankers’ optimism on loan demand conditions during Q1:2021-22 fortified across major sectors” which does not seem to have materialized in reality.

The BSL has been undertaken since Q2 2017-18. IN Q1: 2018-19, it showed a credit demand slump to slightly below 0% concurrently with the GDP registering a fall in annual growth rate from 6.53% to 4.02%. This decline had begun in 2016 when the growth rate was 8.25%.

The present drastic reduction in credit demands parallels the plummeting growth rate, which has now fallen to -7.96%. The credit demand is a health indicator in any economy and the present situation calls for urgent attention to the state of the Indian economy and methods of course correction. 

This also shows that future expectations about the economy are mostly apprehensive, as lenders and borrowers do not feel confident in giving out or being able to repay loans for business activities. Consumer sentiment also remains low.

Earlier RBI had projected easing of loan terms and conditions for “manufacturing, infrastructure and services sectors”. The perception regarding ease of credit declined in all three, though it still remains positive. The retail (-14.3) and mining (-10.3) sectors reported the greatest gap between projected and actual perceptions regarding ease of credit. The perception for all sectors as a whole is -1.9, indicating a pessimistic outlook.


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