Money Supply (M3) as per RBI data has shown a growth of 1.35% from 22 November to 06th December. This is highest non-seasonal growth since January 2018 though sequential growth in March is highest as it is year end and bank credit growth pick ups.It is a very active and lead indicator of bank credit growth in terms of disbursements and how the supply of liquidity is improving that would eventually lead to revival in growth.
In absolute terms money supply saw an addition of ₹2,18,469 cr during the period that was majorly led by addition of ₹ 1,53,913 cr in Time Deposit with banks and ₹52,512cr in Demand Deposits with banks. This is positive for banks as the deposit growth is 1.5% that is highest non-seasonal growth rate resulting in a better cost of funds and CASA improvement.
Though the currency with public saw a low growth of 0.55% adding only ₹11,997cr in absolute terms this means that consumption growth will take more than estimated time to revive.
In terms of Sources of M3 , Banking credit to Government Sector increased by ₹1,48,451cr resulting in
a growth of 3.04% that is highest since July 2019. The main source of this increase is RBI that provided credit of ₹ 98,930 cr. This would be slight negative as higher government borrowing would put pressure on social and infrastructure expenditure that are one of the major driver of growth.
Banking credit to Commercial Sector increased by ₹1,11,344cr resulting in a growth 1.1% that is highest since December 2018 this is all sourced from commercial banks. This would be positive has it would indicate some relaxation in terms of working capital needs of companies and would have also facilitated capital expenditure that would lead to improvement in growth.
We believe this is first concrete indication that the financing activity in the system has picked up post festival season which is very important. For revival of growth it is very important for credit growth to be in high teens. If this growth trend continues for M3 then this would lead to reversal of growth in two to three quarters.