The Reserve Bank of India (RBI) has expressed concern over the contraction in credit offtake by large industries and infrastructure and pointed out that there’s reluctance on the part of bankers to lend to large industries.
The central bank also raised concern over the sharp deceleration in credit growth in the home loan segment and the adverse effect it may have on sectors like steel, cement and construction. The recent decline in credit growth was mainly due to large industries, the central bank said in its study on ‘Sectoral deployment of bank credit’. “Owing to the stressed assets in large industries, there was a general reluctance on the part of bankers to lend to these industries, with the problem getting compounded by the pandemic,” the RBI said.
“Contraction in credit to large industries and infrastructure remains a cause of concern,” the report said. Credit to industry contracted by 1.3 per cent in January 2021 as compared to 2.5 per cent growth in January 2020 mainly due to contraction in credit to large industries by 2.5 per cent (2.8 per cent growth in January 2020). The outstanding bank credit to large industries declined by Rs 59,610 crore on a year-on-year basis to Rs 22.78 lakh crore as on January 29, 2021, according to the latest RBI data.
Although credit growth to large industries turned negative in November 2020, the silver lining has been the robust growth of credit to medium industries. Credit to micro and small industries registered a moderate increase between November 2019 and November 2020. Credit to medium industries registered a robust growth of 19.1 per cent in January 2021 as compared to 2.8 per cent a year ago and credit to micro & small industries registered a growth of 0.9 per cent in January 2021 as compared to 0.5 per cent a year ago.
Personal loans growth decelerated of 9.1 per cent in January 2021 from 16.9 per cent in January 2020.
Large industries constituted around 82 per cent of the credit offtake to the industrial sector, while the micro, small and medium together constituted the rest in November 2020. “Credit to the industrial sector has generally remained weak in the recent years. A peak of 6.9 per cent was achieved in April 2019 but there has been a continuous decline in credit offtake since then with credit growth turning negative in October 2020,” the RBI study said.
The central bank said housing loan growth decelerated moderately in March 2020 and this deceleration extended further into 2020-21 due to the pandemic. From 17.5per cent in January 2020, home loan growth declined to 7.7 per cent in January 2021. The sharp deceleration is a cause of concern because of the adverse effect it may have on sectors like steel, cement, construction, etc. “Housing loans accounted for over 50 per cent of personal loans extended by the banks in November 2020. This sector has been the major driver of growth in personal loans segment,” it said.
The muted credit offtake in the recent past needs to be seen in the context of economic slowdown coupled with the Covid-induced lockdown. Bank credit growth, which had already started decelerating in 2019-20, experienced a further setback in 2020-21 in the wake of the pandemic. However, with the gradual resumption of economic activity, credit to agriculture and services sectors has registered accelerated growth in the recent period, the RBI said.
According to the RBI, credit offtake is expected to pick up as the economy is poised to stage a smart recovery in 2021-22 on the back of decline in Covid infections and swift rollout of the vaccination programme in addition to a number of measures announced by the Government in the Union Budget 2021-22 to accelerate the growth momentum.
The RBI said there are signs of a turnaround, as evidenced by a spurt in property purchases in the recent period mainly on the back of support extended by the Government to this sector. As the economy gathers momentum in 2021 and beyond, housing loans are expected to pick up, it said.