Agencies

MUMBAI: Banks have paid out about Rs 1 lakh crore in loans in the two-week period ended March 2, belying fears that the unearthing of the Punjab National Bank (PNB) fraud in February could put the freeze on credit as lenders became excessively wary. To be sure, the trend is in line with the seasonal uptick as credit demand accelerates before the end of the fiscal year but it’s also part of the overall picture of an economy in revival mode, experts said.The increase is about a fifth of all loans banks disbursed in the first 11 months of FY18 when the economy was still recovering from the disruptions caused by demonetisation in November 2016 and the implementation of the goods and services tax (GST) in July last year. Credit growth had been tepid for most of the fiscal year until this latest uptrend. Banks had loaned about Rs 4 lakh crore in the 11 months between April and mid-February.The surge in demand for loans is a boost for the industry struggling with sluggish credit off take. Loan demand had fallen to a five-decade low earlier in the year as projects dried up on turning unfeasible and bankers shut their doors amid surging bad loans . That spell seems to have been broken, auguring well for investment, which has been a laggard and worryingly so for policymakers seeking to nurture growth revival.“I don’t think there is a credit paralysis — January-March is a high credit growth quarter for banks,” said Ashish Parthasarthy, group head, treasury, HDFC Bank. “We are on a normalising path and credit growth will be 11-12% when nominal GDP is growing strong.” Non-food credit rose Rs 99,860 crore in the February 17-March 2 period, the first reporting fortnight after the Rs 13,000-crore scam was unearthed at state-run PNB, according to the latest data from the Reserve Bank of India (RBI).This marks one of the sharpest spikes in loan growth in several quarters. Adding to the trend was some non-funded credit, such as guarantees of certain kinds, shifting to working capital loans, which involves cash being paid out. “The unusually high credit offtake from banks might have been due to a combination of working capital demand from residual GST input credit delays, plus diversion back to banks from commercial papers and bonds due to rising market interest rates and potentially, part of LoC/LoU (letters of undertaking, letters of credit) support shifting to direct bank credit,” said Saugata Bhattacharya, chief economist at Axis Bank.Incidentally, RBI scrapped LoUs and LoCs on March 13, instruments regarded as bank guarantees and key to the PNB fraud allegedly committed by jewellers Nirav Modi Mehul Choksi , their companies and bank officials.Before RBI move, banks had anyway clamped down on the instruments after news of the fraud broke, so some of the credit surge could be on account of a shift away from LoUs in the reporting fortnight, some experts said, adding the ban could lead to a further surge in loans from banks.LoUs and LoCs acted as guarantees for importers, which used them to borrow from elsewhere. Funds so obtained are cheaper than working capital loans. Now that the instruments have been scrapped, companies are likely to draw from their working capital limits, paying high interest rates.India’s economy grew 7.2% in the December quarter, exceeding expectations and winning back its status as fastest-growing economy from China on the back of a rebound in industrial activity, especially manufacturing and construction, and an expansion in agriculture. China grew 6.8% in the quarter— and is expected to grow at that pace for the full year.