The credit disbursement during festive days this year increased sharply compare to previous year. Even, the quantum of disbursement is higher than the pre-pandemic festive days.
There is extremely limited possibility that bankers exhibiting irrational exuberance in lending. Overall it seems the surge in this credit disbursement is a combine effect of two major factors: -
1.Benign interest rate regime. After the pandemic shock, RBI cut interest rate to a record low to keep the economy growing at a reasonable rate.
2.Stronger confidence of borrowers in their future income given the pace of normalization in the economic activities (as represented by rebound in the various metrics of mobility, business resumption, e-way bill generation, etc.).
While the second factor can become fairly volatile going ahead given the risk of 3rd wave of COVID, the first factor, interest rate, needs more stability to support the aggregate demand. Consequently, MPC may consider maintaining status quo in repo rate in the Dec 2021 Monetary Policy Review.