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Slump in industrial loans remains a drag on banks' credit growth

Within industries, the key sectors that are deleveraging continuously include iron and steel, construction, cement and telecom.

Published: 03rd September 2021 12:13 AM  |   Last Updated: 03rd September 2021 12:13 AM   |  A+A-

Steel

For representational purposes (File Photo | Reuters)

Express News Service

NEW DELHI: Even as the Indian economy is limping back to normalcy with Covid-hit businesses picking up pace, the chunky industrial loans accounting for 29.4% of non-food credit remain the weakest link dragging overall credit growth.

According to the latest data from the Reserve Bank of India (RBI), the industry segment grew a meagre 1% mainly driven by the MSME segment, thanks to the disbursements under ECLGS scheme wherein Rs. 2.14 lakh crore were disbursed up till date. The MSME industries grew by a sharp 21.3% in July 2021 as compared with a contraction of 1.8% in July 2020.

However, credit growth to large industries saw an unpleasant deceleration for eleven months in a row. The share of large industries now make up for 80.5% share (83.8% share in July 2020) in the total outstanding credit to industries.

The segment registered a drop of 2.9% in July as against a growth of 1.4% a year ago underscoring a trend among firms to conserve cash, deleverage as much as possible and leave under-utilised the respective loan limits sanctioned by lenders. Also, select large corporates have access to bond markets. The investment climate in general was not encouraging. 

Within industries, the key sectors that are deleveraging continuously include iron and steel, construction, cement and telecom. Of the total nineteen industries, six saw a drop in credit outstanding. Run-down of exposure in few sectors led to large industry credit consolidating Rs 28 lakh crore for the past three years now. On the other hand, petroleum, rubber, plastic and nuclear fuels have been gaining credit momentum. Airports and roads, too, registered a robust growth of 58.4% and 29.7%, respectively.

To be sure, demand for industrial loans is crucial to boost overall credit growth. “While it may happen with some lag, revival in consumer demand and rise in government spending can be potential triggers,” said analysts at ICICI Securities.

Growth in new loans was seen mainly in agriculture and retail segments. With easing of restrictions and gradual opening up, retail credit was up 2.6% sequentially - highest in the past 18 months. Year on year, the growth rate of the retail loans segment stood at 11.2%. In absolute terms, credit outstanding has increased from Rs.25.7 lakh crore in July 2020 to Rs.28.6 lakh crore in July 2021 driven by vehicle loans, personal unsecured and gold loan. Meanwhile, the housing loan with the highest share of 51.3% in retail, slowed to 8.9% as compared with a growth of 11.1% in the same period of the last year owing to the second wave-led disruption.

Lastly, bank credit to the services sector grew by 2.7% on a year-on-year basis, slower than previous month. Within services, NBFCs segment grew by only 0.5% hurting the overall credit growth. “The services segment registered a significantly slower growth largely due to fall in growth of trade, NBFCs and commercial real estate segment,” noted analysts at Care Ratings. Shipping (0.3% share) grew the fastest at 39%, while the slower growth in the NBFCs segment can be attributed to slowdown in disbursements and preference to bond market for funding needs. Tourism, hotels & restaurants, and the aviation segment registered a growth of 6.3% and 21.3% respectively, showed RBI data.



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