Growth of bank credit fell to a multi-decade low of 5.1% for the fortnight ended December 23, as drying up of demand in the last two months of the year saw businesses cutting down on borrowing. As of December 23, bank lending to businesses, individuals and the farm sector stood at Rs.73.48 lakh crore, a rise of 5.1% over the same period of last year. This is the slowest rate of growth since 2000. SBI chief economist Soumya Kanti Ghosh said it was actually the lowest since 1954-55, when it had slowed to 1.7%. One economist attributed the drop to the disruption caused by demonetisation. The second half of the year is when banks advance the bulk of their loans. A slowdown at this time will hurt growth targets, said economists.
Numbers released by RBI show that corporate loans are shrinking. Since end-September bank loans have shrunk by Rs.1.72 lakh crore (2.3%).The sectors which saw a slowdown or drop in credit include infrastructure, food processing, chemical and chemical products, all engineering, textiles and basic metal and metal products.
Although very little fresh investment was taking place even before demonetisation, there was a consumption push.