MUMBAI: Growth in bank credit in FY17, at 5.1%, has turned out to be the slowest in over 60 years as state-owned banks burdened with bad loans struggled to find safe avenues to lend. The last time loans grew slower than this was in 1953-54 when bank credit growth had slowed down to 1.7%.According to data released by the RBI on Friday, outstanding bank credit as on March 31, 2017 stood at Rs 78.82 lakh crore. A large part of the growth in lending has come in the last fortnight of the month when banks disbursed Rs 3.16 lakh crore. But even after this last-minute surge, loan growth for the whole year was 5.1% as against 10.3% last year.Other than bad loans and corporate investment coming to a standstill, bank credit growth was also constrained by demonetisation . Between October and December 2016, bank credit contracted by 2.3% as against a 2.7% growth during the same period last year.Besides bad loans, one of the biggest concerns for the RBI is managing the surplus liquidity with banks. While on the one hand banks are seeing lower credit growth, on the other their deposits continue to remain high, again thanks to demonetisation.Banks have ended the year with an 11.8% growth in deposits, which now stand at more than Rs 108 lakh crore. Some bankers feel that the RBI is reluctant to intervene in the forex market as this would add to the surplus liquidity in the system.According to a senior banker, of the total credit growth during the current fiscal, half has come from home loans and a large part of the rest has been due to loans to the service sector. Most of the lenders are private banks and a few large private banks. Other than them, most public sector banks are likely to report flat credit growth for FY17.One fallout of the slowdown in credit is that banks will report a higher percentage of bad loans. Growth in credit helps to mask the level of bad loans. With bad loans at close to 10% of their total assets, many banks face a catch-22 situation. The RBI’s prompt corrective action may make it difficult for banks to expand their balance sheet. The absence of fresh lending would, however, make it difficult for banks to generate revenues to clean up their books.“With asset quality pressures, banks — especially the weaker public sector banks (PSBs) — have been reporting a continuous degrowth in their net interest income (NII) over the five consecutive quarters of Q3FY2016 to Q3FY2017, mainly on account of slower credit growth and reversal of interest income recognised on NPAs” ratings agency ICRA said in a report on Thursday.