Bankers’ sentiments on lending conditions have improved after the adverse situation witnessed during April-June 2020 quarter due to the COVID-19 pandemic, the RBI Bulletin said on December 24.
The COVID-19 pandemic and related lockdown resulted in a significant contraction in loan demand across all sectors during April-June 2020, which severely dampened sentiments among Indian banks.
During July-September 2020, however, the loan officers’ sentiments recovered quickly, and the improvement was broad based. Infrastructure, mining and quarrying sectors recorded lower optimism than other sectors, the RBI said.
“Retail/personal loan demand was assessed to have posted maximum recovery after recording sharpest fall during the lockdown quarter,” the RBI bulletin said.
Bankers, however, do not foresee a sudden quarter-on-quarter change in loan terms and conditions; these are more dependent on the performance of loans across sectors, macroeconomic conditions and opportunities for growth across sectors, the bulletin said.
RBI credit growth data shows how bank money has become scarce for smaller borrowers. Loan growth to micro and small companies contracted 5.3 percent in this financial year compared with a contraction of 4.4 percent in the previous year.
Growth in overall loans stood at 5.5 percent in the 12 months ending October compared with 8.4 percent in the previous comparable period. Growth in personal loans too slowed to 9.3 percent from 17.2 percent in the year-ago period.
Bankers’ assessment of changes in loan demand conditions is fairly close to the growth in actual credit by SCBs, the data which are released subsequently, according to the RBI bulletin.
“Their expectations on loan demand have generally been more optimistic but broadly capture turning points in credit growth cycle,” the bulletin said.
According to the bulletin, responses to RBI surveys suggest that perceptions on retail/personal loans, which were most severely hit during the period, have improved. The respondents expressed lower optimism for the infrastructure, mining and quarrying sectors when compared to other major sectors, the RBI said.
Smaller companies are hard bargaining with banks for loans. These firms don’t find takers in the debt market. Even if they get a bank loan, the money comes with a higher cost.
Commercial banks are lending to smaller, low-rated firms at 12-14 percent while big companies with a higher rating can get at around 9-10 percent. But, top-rated companies prefer to tap the debt market than bank loans.
The MSME (micro, small and medium enterprises) loan scheme announced by the government in the wake of the pandemic has helped, to an extent, to keep the credit flow to medium-sized companies.
This has reflected in the credit growth figures. Banks showed a willingness to lend because of the pressure from the government to participate in the scheme and, secondly, due to the fact that these loans were government guaranteed.