Credit growth of scheduled commercial banks appears to have bottomed out, according to official data from the Reserve Bank of India (RBI). It grew at 6.6 per cent y-o-y as on February 26 as compared to 6.1 per cent last year.
The growth comes after months of unpleasant deceleration in overall credit offtake and just weeks after the central bank flagged concerns about bleak lending to the industry, which accounts for the highest share in total bank lending at 29 per cent. The modest increase in credit growth also points to regaining economic momentum as household consumption makes the switch from ‘essential-only’ to discretionary spending.
Much of the growth was due to retail and agriculture lending and within retail, personal and gold loans saw significant increases. Within the personal loan segment, loans for consumer durables posted a robust growth of 14.6 per cent in January, while other personal loans grew at 12.2 per cent. In particular, personal loans against gold jewellery saw a staggering 132 per cent increase.
According to the latest RBI bulletin, the stabilisation in overall credit growth was evident in sectoral disbursement of bank credit. “Credit to agriculture, the brightest spot in sectoral credit offtake by the SCBs, which accounts for 13 per cent of the total credit disbursed in FY20 is rising steadily and grew at near double digits in January, 2021.
Credit growth to the services sector was 8.4 per cent in January, propelled by credit disbursals to trade, tourism and transport sectors,” it noted. That said, overall lending to industry remained in contraction, though credit growth to medium industry stood at 19.1 per cent in January (2.8 per cent a year ago), while micro and small industries inched close to 1 per cent (0.5 per cent in January, 2020).
Bank credit to large industries dragged down the overall credit to industry by banks as these firms, especially the high rated ones, took advantage of the prevailing low interest rate regime and borrowed from the market to pay off some of their high cost bank credit. Bank group-wise, growth in credit disbursed by public sector banks stabilised close to six per cent in 2021 (January-February), that of private sector and regional rural banks saw robust pickup to 8.6 per cent and 12.4 per cent, respectively in February, while contraction in credit growth of foreign banks tapered sequentially.