Struggling to cope with bad loans and the aftermath of the demonetisation decision, Indian banks have taken a hit on lending, a report said on 14 December. Loan growth plunged by ₹1 lakh crore in the fortnight that ended November 25, according to estimates. According to RBI data, credit or loan growth for the fortnight that ended November 25 declined to 6.6 per cent from 7.9 per on a year-on-year basis in the previous fortnight.
“Credit growth fell by around ₹65,000 crore from November 11 to November 25. At the same time last year, credit growth rose by ₹38,000 crore and the year before last, the growth was around ₹30,000 crore during the same fortnight. The average credit growth in a fortnight is around ₹30,000-35,000 crore. Compared to the previous years, this means overall credit growth has declined by ₹100,000 crore during the first fortnight after the withdrawal of notes,” Udit Kariwala, Analyst, Financial Institutions, India Ratings & Research, said.
During the fortnight that ended September 5, 2014, credit growth in the banking system fell to 9.68 per cent – the first time since October 2009 (9.01 per cent) that growth in bank credit fell below 10 per cent.
Bankers said the note withdrawal exercise may turn out to be a drag on the banking sector’s profits with retail fee income falling and operating costs rising sharply.
“Attention was diverted from normal business as banks were directing all their resources for collecting deposits after demonetisation. We were forced to deploy most of the staff for cash management – collecting deposits as well as handling withdrawals and note supplies. We asked staff who were on leave to join back. On many days, our staffers were leaving branches well past midnight,” a senior official of a leading nationalised bank said.
“It’s very difficult to quantify the impact of cash management on the working of banks. Operating costs of banks have gone up after the announcement. There could be some impact on the banks’ financials in the third quarter,” Kariwala said.