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  Low household credit in India has been a long running theme for investors in India. In the past three decades, I have observed that almost every presentation made by brokers, money managers, investment advisors, lenders, companies catering to discretionary consumption etc., has highlighted this phenomenon. The market participants and companies have consistently emphasized on low household credit as a single most significant factor enhancing the growth potential of, particularly, financial services and discretionary consumption sectors. However, in the past one year, the narrative seems to have changed somewhat. These days, it is not uncommon to find rising household credit being cited as a key risk to financial stability. The Reserve Bank of India and many analysts have mentioned this factor as a key stress point for the financial stability. The latest Financial Stability Report released by the RBI note...

The latest credit and deposit statistics highlight some noteworthy trends in the Indian economy. During the first fortnight of June 2023, the credit offtake continued to grow at a healthy pace of 15.4% (yoy); though it slowed down on sequential basis. The deposit growth accelerated to 12.1% (yoy) narrowing the gap between credit-deposit growth to 337bps, the lowest in over a year. The gap recorded a high of 875bps in November 2022. Rise in deposit rates and withdrawal of Rs2000 denomination currency notes primarily led to the rise in deposits. Credit deposit ratio at pre pandemic levels The Credit to Deposit ratio has been generally improving since the later part of FY22 due to faster growth in credit compared to deposits. On a sequential basis in June 2023, it improved by 60 bps from the immediate fortnight (reported June 2, 2023, due to lower deposit growth than credit growth. The CD ratio is now closer to the pre-pandemic level of 75.8% in Feb 2020 and 75.7% in March 2020. Liq...

After almost a decade the Indian financial sector seems to be out of troubled waters. Almost all significant banks are beyond solvency concerns and set to progress in the path of growth. The asset quality has shown steady improvement for most banks despite Covid disruptions. The loan growth has improved from historic lows seen in the past few years. Earning growth is strongly aided by healthy recovery from the bad accounts. Moreover, the loan books of most tier 1 and Tier 2 banks are tested for stress and provisions are adequate to meet most foreseen adversities. These institutions have come a long way from the first announcement of Dirty Dozen (the largest 12 non performing accounts) in the summer of 2017. Eight of the notified 12 accounts have been resolved with more than 50% recovery. Resolution is under progress for two accounts and the other two are under liquidation. As of the end of FY22, no major potential stressed account has been reported that can materially alter the curre...

May 2021 Bulletin of the Reserve Bank of India , carries some useful insights about the performance of NBFCs during the pandemic. Being a critical source of consumer and MSME finance, performance of NBFCs is usually a broad indicator of the consumption demand, and consumer and business sentiments. The key highlights of the NBFCs performance, especially during 2H2020, are noted as follows: ·          Pandemic has hit NBFCs hard. “The impact of the pandemic can be seen on both asset quality and liquidity, although the latter was addressed to a considerable extent through timely policy measures.” ·          An unfavourable mix of COVID-19, sell-offs in financial markets and the abrupt winding-up of specific schemes by a mutual fund contributed to NBFCs facing record spike in yields on their debt in Q1: 2020-21. The sharp market differentiation continued between the highly rated and other NBFCs, notwithsta...