(This story originally appeared in on Jan 06, 2017)

MUMBAI: Growth of bank credit fell to a multi-decade low of 5.1% for the fortnight ended December 23, as drying up of demand in the last two months of the year saw businesses cutting down on borrowing.Data released by RBI showed that as of December 23, bank lending to businesses individuals and the farm sector stood at Rs 73.48 lakh crore, an increase of 5.1% over the same period of last year.Going by readily available RBI data, this is the slowest rate of growth since 2000. SBI chief economist Soumya Kanti Ghosh went further to say that credit growth was actually the lowest in over 60 years - since 1954-55 - when it had slowed to 1.7%.'At 5.1%, credit growth slide reaching a point of no return'A slowdown to 5.1% in December seems to indicate that credit growth is reaching a point of no return in this financial year.While there is marginal growth year-on-year, on a year-to-date basis (from April 2016) credit has declined in many sectors," said SBI chief economist Soumya Kanti Ghosh.Year-on-year credit growth in the previous fortnight ended December 9 was also a low 5.76%.DK Joshi, chief economist at Crisil, the country's leading credit rating agency, attributed the drop in credit growth to the disruption caused by demonetisation . "Otherwise there was no reason for credit growth to fall. The economy was looking up, there was the pay commission hike, there were good rains, and some interest rate cuts were being passed on to borrowers, which would have created more demand for credit," he said.The second half of the year is when banks advance the bulk of their loans. A slowdown at this time will hurt growth targets, said economists."Demonetisation has hurt activity across all corners of the economy. Purchasing Managers Index (PMI) data shows that both manufacturing and services have contracted in December.The PMI order-to-inventory ratio suggests that upcoming manufacturing activity will also remain weak. Input prices have been rising, but have not yet been passed on to final prices, suggesting that corporate margins have worsened," said Pranjul Bhandari, chief economist, HSBC India in a report.According to Jefferies India an investment bank, credit growth could slip to 6% in FY17. "Deleveraging of corporate balance sheets, halt in fresh capex, and increased access to corporate bond market have led to a negative growth in banks' credit to corporates.Given that 56% of bank loans and 88% of non-performing assets are with large borrowers, they hold the key to bank credit growth pick-up and asset quality improvement," the research firm said in a report.RBI numbers show that corporate loans are shrinking. Since end-September bank loans have shrunk by Rs 1.72 lakh crore (2.3%). The sectors which saw a slowdown or drop in credit include infrastructure, food processing, chemical and chemical products, all engineering, textiles and basic metal and metal products.Although very little fresh investment was taking place even before demonetisation, there was a consumption push. Crisil's Joshi expects consumption-led growth to return because of "some of the measures likely in the Budget , lower interest rates and if we have good rains. The next fiscal year will see a pick-up. But it will not happen in the January-March quarter." The silver lining appears to be the gains to the government from demonetisation."We continue to expect the Income Disclosure Scheme II to net around Rs 1 lakh crore of tax. At the same time, we have cut our estimate of RBI dividend from black cash money not returned to banks to Rs 50,000 crore from Rs 95,000 crore earlier with the bulk (of demonetized currencies) deposited/exchanged," said Bank of America Merrill Lynch in a report.