Non-bank funding decelerates bank credit growth

Public sector banks suffering from corporate bad loans were hoping for some relief in the form of a pick-up in credit growth in the quarter ending March 2017. But their expectations have been belied as credit offtake has slowed down during this period. In fact, credit growth of the banks is at a historic low this year. The slowdown in investments by India's corporates and the bad loans pile-up are not only to blame for the poor show in bank loan disbursals.

Funding source tilt from bank to non-bank resources such as bonds, equities and borrowings from non-bank financial companies has cost bank credit growth greatly. The share of bank credit in the total flow of financial resources to the commercial sector has halved to 22 per cent in the last four years. However, the share of bonds has almost doubled to 33 per cent during this period. Even in FY17, bond issuances totalled more than Rs 5 trillion as compared to Rs 3 trillion of bank loans disbursed.

Furthermore, the Ministry of Finance and the RBI are working together to create a plan to tackle NPAs. It is also expected to address DRT, SARFAESI and SDR, S4A norms which will facilitate resolution of large ticket wilful defaults. The plan is expected to be announced by end of March 2017 to early April 2017.

To tackle the NPA problem, PNB and SBI have seized properties worth Rs 9325.8 crore and Rs 3183.7 crore, respectively, up to December 2016.