Bank credit growth reverses recovery made in June, July; SBI research finds stress on households

The recovery of bank credit in the months of June and July reversed in August 2020, due to a decline in credit to personal loans and infrastructure segments. The bank credit that increased by Rs 39,200 crore in June and July, fell by Rs 36,000 crore in August, according to the SBI Ecowrap report. The report suggested that deposit and credit growth during the current Unlock 4 regime witnessed large declines, with the maximum decline in savings bank deposits and bank advances. On the other hand, credit from NBFCs jumped in August after 3 successive months of decline.

Indicating the stress on household balance sheets, the consumer deleverages also declined in August. It is to be noted that consumer deleverage means the act of getting rid of one’s own debt. India’s economy is reeling through severe financial stress, where the core industries output shrank around 8 per cent in the month of August and the government is struggling through low revenues and higher expenditure.

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The SBI research has estimated that the net revenue slippage of the Centre is likely to be around Rs 7 lakh crore in current fiscal 2020-21, thus taking the consolidated fiscal deficit of the Centre and States to as high as 13 per cent of GDP. Given the budgeted borrowing numbers, the report also indicated large expenditure cuts that may hamper growth.

The government’s cash balances showed that it is currently not spending and thus September is unlikely to be much better compared to August, SBI Research said. The index of industrial production is further expected to contract by over 5 per cent in August, however, modest positive growth in September 2020 is possible. Though the business activity has improved over the weeks, the gain is not getting translated into meaningful economic activity as consumption demand remains exceptionally weak.