Steady rise in share of credit to industry

An analysis of patterns in non-food credit (comprising loans to agricultural activities, industry, services and personal loans) extended by scheduled commercial banks from April 2007 to February 2011 (latest available data) places industry in the numero uno position, by a wide margin. While the share of credit to industry has gone up steadily from 38 per cent to 44.5 per cent, that to personal loans has progressively come down from 26.6 per cent to 19 per cent.

The share of agriculture too, a priority sector for bank lending, has marginally declined to 12.3 per cent from 12.7 per cent in April 2007. Services though managed to improve its share from 22.8 per cent to 24.2 per cent.

Expanding share of infrastructure

What has driven the industry segment growth is the rise in credit to the infrastructure sector (whose share in the total industrial credit has moved up from 21 per cent to 33 per cent). Loans outstanding in the infrastructure sector now stand at Rs 5.10 lakh crore, up from Rs 1.44 lakh crore in April 2007.

The maximum growth in credit to infrastructure was witnessed during 2009-10 at 45 per cent (year on year), synchronising with the pick-up after the economic slowdown.

Interestingly, credit growth in two related sectors — cement and construction had peaked prior to 2009-10. Incremental loans to these two sectors grew at about 50 per cent and 40 per cent respectively in each of the two earlier years — 2007-08 and 2008-09. Since then, a problem of excess capacities in the cement industry and a slowdown in execution in the construction industry has kept down the demand for credit. Also, some export-oriented sectors such as engineering, textiles, gems and jewellery and chemicals have seen their share of credit decline from 30 per cent in April 2007 to 23 per cent currently.

Shrinkage in personal loans

A decision by banks to curtail retail lending, following an increase in defaults during the 2008 crisis, could be the reason for the fall in the share of personal loans. Individuals too could have cut back on borrowings following the slowdown.

Besides, a plunge in credit-card outstandings and shrinkage in the share of vehicle loans have also contributed to the drop. In fact, tightening by banks and prudence on the part of borrowers has seen total outstandings in the credit-cards segment shrink from Rs 19,706 crore to about Rs 18,600 crore during this period.

Though, unlike credit cards, vehicle loan disbursements have grown per se , a fall in their share seems surprising, considering that the auto industry has been posting 26 per cent growth in each of the last two years. It is possible that borrowers could have turned to NBFCs.

The share of education loans, however, doubled from 3.25 per cent to 6.5 per cent, thanks to its priority sector thrust. Given that after two successive years of single-digit growth — 2008-09 and 2009-10 — the year-to-date growth in personal loans this year stands at about 15 per cent; this downtrend in the share of personal loans could reverse.

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