In a sign that the economy is beginning to shake off the impact of the Covid-19 pandemic, credit growth to industry accelerated to 6.5 per cent in February from just 1 per cent growth in February 2021. Most experts are forecasting that the demand for credit would continue as the economy gets back to its feet with the easing of restrictions.

According to Reserve Bank of India data, gross bank credit grew 7.9 per cent in February compared to the corresponding period in 2021. While food credit contracted -9.3 per cent, non-food bank credit grew 8 per cent, mitigating the impact of lower credit offtake by the agri-sector. The growth in non-food credit was 6.6 per cent in February 2021. 

Personal loans continued to show robust growth of 12.3 per cent in February compared to 9.6 per cent a year ago, led primarily by housing loans and vehicle loans. Credit offtake by services sector was, however, sluggish with growth of 5.6 per cent, compared with 8.8 per cent y-o-y growth in February 2021. This seems led by the uncertainties in the services sector caused by the Omicron wave of Covid-19.

Sectors leading the revival

If we look at the sector-wise growth in non-food credit, a sharp rebound was witnessed in sectors such as mining and quarrying, infrastructure, power and telecommunications. Credit revival in these capital intensive sectors is good for economic growth as it will have a trickle-down effect on other sectors as well. Credit growth in infrastructure segment was 11.9 per cent in February, compared with 0.3 per cent in February 2021. There was contraction of 30 per cent in credit to telecom sector in February 2021, which revived to 31.6 per cent growth in February 2022.

The roads sector continued to show high credit demand at 20.1 per cent this year, on par with the growth of 19.7 per cent last February. Food processing and textiles too displayed continued demand for credit.

Commodity-based industries such as cement and cement products and metals, however, appeared wary, with credit growth contracting in February. Similarly, demand for credit from construction sector also remained weak.

“We believe revival in consumer demand and rise in government spending can be potential triggers for industry credit growth and this could turn out to be a key catalyst for overall credit growth revival,” said a report by ICICI Securities.

Rating agency Crisil on Friday said it expects bank credit to grow at 11-12 per cent in fiscal 2023 from  about 9-10 per cent in fiscal 2022.

Axis Bank has projected credit growth at 8.5 per cent in 2021-22 and expects it to grow further to 9 per cent in 2022-23. Credit growth was at 6.1 per cent in 2019-20 and at 5.5 per cent in 2020-21.

Fourth quarter disclosures by banks on growth in advances will shed more light on credit demand.