FY20 Credit Growth stays pretty strong in Bharat as urban India slumps

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The Industry Outlook Team | Wednesday, 22 July 2020

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Though the economic engines in towns and cities must roar back to life for a sustainable return of loan demand, the plunge in credit growth in the last fiscal year was cushioned significantly by India’s countryside.

According to disaggregated data released by the Reserve Bank of India, although the overall credit growth critically slowed to 6.28 percent in FY20 (12.9 percent in FY19, in the same period), rural credit growth was fairly better in FY20 with 10.9 percent, against 15.2 percent in FY19.

While if we see the credit growth in metropolitan areas, it slowed dramatically from 12.83 percent in FY19 to 4.92 percent this year. With one basis point equals to one-hundredth of a percentage

point, FY20 is down with 790 basis points.

Sameer Narang, chief economist, Bank of Baroda, “In the long run, what we have seen globally as well as in India is urbanization has been the force of growth for most investments. That underlying theme does not change in the long run although, in the near term, rural areas will be the point of rescuing the economy because, in terms of population, these account for 65% of our total population and 45% of the gross domestic product."

Rahul Bajoria, chief India economist at Barclays hasd said a stronger rural sector should mitigate, but not fully offset, the ongoing economic damage

“Despite the gloomy healthcare backdrop, the strong pickup in monsoon rainfall is a major positive for the rural economy. Not only has the country received above-normal rainfall as of 15 July, but... the temporal and spatial distribution has also been conducive to crop sowing," Bajoria wrote in a note on 16 July..

Rahul Bajoria, chief India economist at Barclays has rightly said that a strong rural sector can be a first aid for the ongoing economic damage but cannot fully heal it. “Despite the gloomy healthcare backdrop, the strong pickup in monsoon rainfall is a major positive for the rural economy. Not only has the country received above-normal rainfall as of 15 July, but... the temporal and spatial distribution has also been conducive to crop sowing," Bajoria wrote in a note on 16 July.