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Lending to the services and priority sectors slowed in March this year, witnessing a growth 5.6 per cent and 7.7 per cent, respectively, due to, among other factors, a softening of commodity prices.
RBI data on deployment of bank credit show that the outstanding loans to the services sector as on March-end 2015 grew 5.6 per cent year-on-year to ₹14.12-lakh crore, against 16.1 per cent to ₹13.37-lakh crore as on March-end 2014.
This dip was on the back of de-growth in loans to tourism, hotels and restaurants, and transport operators. In addition, loans to non-banking financial companies (NBFCs), professional services, wholesale trade and other services saw an average growth of 5.5 per cent.
Similarly, loans to the priority sector grew by a mere 7.7 per cent to ₹20.22-lakh crore as on March-end 2015 against 22 per cent growth a year ago at ₹18.78-lakh crore. The growth slowed due to a drop in credit to micro and small enterprises, manufacturing, rural housing, education, and de-growth in export credit, RBI data showed.
Economic growth matters“The overall economy has seen a downturn and it will continue to reflect on bank credit. However, a lot of credit demand has also shifted to the bond and the CP market because of their lower rates vis-à-vis bank interest rates…Further commodity prices have seen some softening in the past one year,” said Vibha Batra, Head of financial sector ratings at ICRA. Many oil importers, who used to borrow from banks, have reduced their demand due to the softening of oil prices globally. As the industry continues to be in a wait-and-watch mode, the services sector has invariably suffered the ill-effects.
Not surprisingly, industry credit was also weaker at 5.6 per cent year-on-year, down from 13.1 per cent.
There is nothing new on the infrastructure front. Hence, retail will continue to drive credit growth for the banking sector, Batra said. This is evident from the growth in personal loans being steady at 15.4 per cent at ₹11.96-lakh crore as on March-end 2015 (from 15.5 per cent at ₹10.37-lakh crore a year ago). This growth was largely driven by demand for housing, credit cards, loans to individuals, and other personal loans.
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