News Analysis

Individuals, trade race away, micro units lag

Keerthi Sanagasetti | Updated on July 04, 2021

The Government has relied heavily on credit-based stimulus packages to keep the economy’s wheels turning   -  istockphoto

Only 6% of incremental goes to industry in 2 years till May

As two waves of Covid put the economy through the wringer, the Government has relied heavily on credit-based stimulus packages to keep the economy’s wheels turning. The RBI has also put loads of cheap money into banks’ hands through unconventional measures.

With banks sitting on cheap and plentiful funds, where did they deploy it in Covid times? BusinessLine compared the RBI data on outstanding bank credit between end-May 2019 and end-May 2021 to see which sectors hogged bank credit and which didn’t.

The analysis shows that while banks added ₹11.9-lakh crore in non-food credit between May 2019 and May 2021, the bulk of it went to individual borrowers towards collateralised loans, while needy segments such as micro enterprises and exports struggled.

Beeline for retail

Individual borrowers turned favourites, absorbing 46 per cent (₹5.5-lakh crore) of the incremental credit. Among individual loans, banks seemed to prefer those with a collateral. Of the ₹5.5-lakh-crore-increase, housing loans accounted for ₹2.8-lakh crore, vehicle loans ₹38,275 crore and jewellery loans ₹37,181 crore, almost trebling in two years. Education loans shrank, but personal loans, taken at high rates to meet exigencies, rose by ₹1.7 lakh crore.

Medium wins, micro loses

Only 6 per cent, or ₹69,760 crore, of the incremental bank credit went to industry. To alleviate hardships faced by MSMEs, the Centre announced credit lines of ₹4.5-lakh crore to them under the Emergency Credit Line Guarantee Scheme.

But there hasn’t been a very material diversion of bank credit from other sources to MSMEs in the last two years. MSMEs in manufacturing and services (priority sector loans) received just ₹56,665 crore out of the incremental bank loans of ₹11.9-lakh crore.

MSMEs saw their outstandings shrink ₹14,627 crore while medium size firms saw a ₹71,292-crore increase. This explains complaints from micro enterprises that benefits of the stimulus haven’t reached them. MSMEs’ share in total bank credit (of ₹107- lakh crore) stood at ₹12.1-lakh crore in May 2021, not much changed from ₹11.5-lakh crore as of May 2019.

Large enterprises also saw a minimal expansion in credit, but this could be due to their deleveraging their balance-sheets, to take advantage of the low rates.

Trade up, hospitality down

Services received a fourth of all incremental bank credit at ₹2.8-lakh crore. But the lion’s share was absorbed by wholesale and retail trade (₹1.07-lakh crore) and commercial real estate (₹33,000 crore). The hospitality sector, battered by Covid, received just ₹10,578 crore in new loans, while loans outstanding to stressed sectors such as shipping, aviation and professional services actually shrank.

Published on July 03, 2021

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