Bank lending slowed down in the June quarter compared to last year’s levels, likely reflecting a wait and watch attitude by the investors pending election results during the quarter.
Incremental loans increased Rs 2.79 lakh crore or 1.7 % this fiscal year up to June 14 compared to Rs 3.48 lakh crore or 2.5 percent a year ago reflecting a slowdown in credit demand for investments as well as working capital needs- and indicator of level of economic activity. Significantly, non-food credit offtake contracted by Rs 68,266 crore during the fortnight ended June 14. It is very rare for the credit cycle to turn negative in the month of June.
The Centre for Monitoring Indian Economy – CMIE data analysed by Bank of Baroda shows that investment intentions in the manufacturing sector have touched a 20 year low during the quarter. Investment announcements for the first quarter of the year were at Rs 44,300 crore.
The previous lowest level was in June 2005. “Given the fact that the economy has been growing at a steady pace, the only reason that can be attributed to e sluggish intentions can be the Elections. Industry has probably been in a wait and watch mode before making any investment decision. This however, has not been the trend in the past when Elections were held.” said a research note by Bank of Baroda.
CMIE data on corporate bond issuances for the first quarter of the year show that a similar trend is witnessed. Overall issuances had increased from Rs 1.43 lakh cr in Q1-FY23 to Rs 2.86 lakh crore in Q1-FY24, but came down sharply to Rs 1.73 lakh crore in Q1-FY25.
One could see some pick-up in the second quarter considering that the budget will be announced only towards the end of July. “A good monsoon and steady demand during the festival season which starts from end-August and lasts till December would be the time when investment could increase at a faster pace.” the Bank of Baroda report said.
Even policy makers are optimistic about the future as articulated by the Reserve Bank of India governor Shaktikanta Das said in his April monetary policy statement. “ The prospects of investment activity remain bright owing to an upturn in the private capex cycle becoming steadily broad-based” Das said. Several sectors are seeing improvement in investment activities including food processing, beverages and tobacco, textiles, chemicals and chemical products, cement and cement products, iron and steel, electronics, construction, telecommunications, roads and railways.
