Private credit makes about turn in January

Defying both the expectations and the trend seen for the past seven months, the credit extended to the private sector by licensed commercial banks has reversed direction to record a de-growth of Rs.52.2 billion in January 2024.
It wasn’t immediately clear if there was any one-off factor which turned the months-long streak in private credit growth into negative in January, as such credit was well poised to grow at an accelerated pace in 2024 with the decline seen in both the yields of government securities and the lending rates.

January marked an about turn from the Rs.102.6 billion credit extended to the private sector in December last year when the current streak of gains began in June last year, the same time the Central Bank pivot to cut rates to reflect the faster disinflation.
On a year-on-year basis, the January decline translated into a neutral growth from a negative 0.6 percent in December 2024.
The industry expects roughly a 10 percent or slightly above growth in private sector credit in 2024 as  lending rates are coming down while banks stay hungry for growth after more than a year of no growth.
Credit extended to the private sector is a key gauge of economic health as the quantum and the pace it is growing reflect how vibrant an economy is.
For well over a year, the banks tightened their credit standards and closed their lending spigots to contain any more damage on their asset quality as the rates rose sharply in response to the red-hot inflation while the economy collapsed as the country ran short of foreign exchange.

Now that the situation is normalising with the economy set off to a growth from the second half of last year and liquidity coming back to the system, the banks have reopened their lending taps once again.