August credit data portends trouble: Large decline in SB deposits and lower pace of accretion of time deposits

KOLKATA, Oct 1:Incremental bank credit growth lost much of the momentum in August, said Dr Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.
According to a research report from the State Bank of India’s Economic Research Department, authored by Dr Ghosh, ” The bad thing is that incremental bank credit that increased in June & July by Rs. 392 bn declined in August by Rs. 360 billion, which is mainly due to decline in credit to personal loans and infrastructure segments. ”
“Credit to NBFCs, however, jumped in August after 3 successive months of decline. ” ” Simultaneously, our bottom up approach suggests that deposit and credit growth (extrapolated on the basis of sum of daily variations) during the current unlock 4 regime witnessed large declines, with the maximum decline in savings bank deposits and even bank advances happening in unlock 4 across all lockdown and unlock phases, ” he stated. ”
The consumer deleverage also declined in August indicating the stress on household balance sheets now emerging with gusto. ”
” Against this background, the Government sticking to borrowing programme though will please the debt markets, looks challenging given the current exceptionally weak Government finances. ”
” Net revenue slippage of the Centre, after taking into account increase in excise duty gains along with the shortfall in tax and non-tax revenue and disinvestment receipts, is likely to come around Rs seven lakh crore in current fiscal. ”
” We are thus expecting that consolidated fiscal deficit of the Centre and States will touch 13% of GDP as per current trends, ” Dr Ghost said. ” Given these numbers, sticking to the budgeted borrowing numbers for now at least on paper thus indicates large expenditure cuts that will be clearly inimical to growth, ” he added.
” In fact, nominal GDP growth number is likely to decline below FY19 levels. The significant Government cash balances also indicate that the Government is currently not spending and thus September is unlikely to be much better compared to August. ”
” Some good numbers are, however, in the offing. Based on the SBI index, we believe IIP & IIP manufacturing could still contract by below 5% in August and modest positive growth of in September 2020 is possible. ” ” Business activity as shown by SBI Business Activity Index reveals economic activity which declined and stagnated since 2nd week of July, again picked up during 2nd week of August. ” ” Mid-September again showed pick-up in economic momentum with the latest value higher than the peak achieved at end-June, ” he noted. ” However, this gain is not getting translated into meaningful economic activity as consumption demand remains exceptionally weak. ”
” We now await the RBI policy and the markets have priced in no rate cuts in FY21, ” Dr Ghosh said. (UNI)