Money & Banking

Non-industrial sectors dominate non-food credit growth since 2014

Our Bureau Mumbai | Updated on September 20, 2021

Overall credit growth decelerated in the same period, primarily in the industrial sector

The overall non-food credit growth during the period 2014-15 to 2020-21 was almost entirely driven by expansion of credit to non-industrial sectors, particularly lending to the retail segment in the form of personal loans, per an article in the Reserve Bank of India’s latest monthly bulletin.

Active participation of both the dominant-group (including six leading banks on the basis of their share in total non-food credit) and the other-group of banks (which includes the remaining 27 banks) is driving credit growth to the non-industrial sectors, according to an analysis of 33 select banks by RBI officials Pawan Kumar, Manjusha Senapati and Anand Prakash.

Impact of Covid

The authors observed that credit extended by the other-group to the industrial sector was affected significantly due to Covid-19 but the performance of this group is better than the dominant-group as far as credit to agriculture and services sectors is concerned.

They said that, “The sharp slowdown in industrial credit, especially by other-group of banks, warrants attention and steps to step up credit offtake commensurate with appropriate risk-taking, a number of which have already been taken by the Government and the Reserve Bank, could defreeze the credit market for the industrial sector and help in reviving the growth momentum derailed by the Covid-19 pandemic.”

After witnessing a significant slowdown in credit offtake during 2019-20 and 2020-21, there has been some uptick in credit growth in the recent months notwithstanding the second Covid wave, which augurs well for the economy, the authors said.

Credit boom period

According to the article, bank credit growth has witnessed significant fluctuations in the past one and half decades.

“The period between 2007-08 to 2013-14 could be characterised as bank credit boom period in the Indian economy, as non-food credit registered double digit growth, primarily driven by robust credit growth to the industrial sector,” the authors said.

Both dominant-group and other-group of banks lent aggressively to the industrial as well as other sectors.

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Within industries, infrastructure, and basic metal & metal product industries accounted for a major portion of credit offtake from both the bank groups during the credit boom period.

Credit cycle reversal

Thereafter, however, the credit cycle reversed along with a shift in the sectoral deployment of bank credit.

“During 2014-15 to 2020-21, overall credit growth decelerated, primarily driven down by reversal in credit growth to the industrial sector because of deleveraging by non-financial firms, increasing dependence on non-bank sources for financial resources, and some risk aversion on the part of banks, especially by the other-group of banks to lend to industries, which got further compounded after the outbreak of Covid-19 pandemic,” the authors said.

Published on September 20, 2021

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