[metaslider id=10647]Non-food bank credit increased by single digit

Dr. M.S. Kapadia
Dr. M.S. Kapadia

to 8.6 per cent during 2014-15, slowing from 14.3 per cent in 2013-14, 13.5 per cent two years ago and recent years’ peak of 20.6 per cent during 2010-11. In fact, the single-digit growth in non-food credit has come after double-digit increase over past two decades. The lending performance, as it has come in the face of continued strong growth in deposits, has got analysts worried as banks have remained a dominant source in external business finance in the country over decades.

Data on sectoral deployment of bank credit collected on a monthly basis from select 47 scheduled commercial banks, accounting for about 95 per cent of the total non-food credit deployed by all scheduled commercial banks, form the basis for the present exposition.

Industry accounts for around 44 per cent, services 23 per cent, personal loans 20 per cent, and agriculture and allied activities 13 per cent. The shares have remained around these levels in recent years.

Industry
The share of industry in non-food credit has declined to 44.1 per cent, from 45 per cent during 2013-14 and 45.8 per cent two years back, following the decline in the growth rate to 5.6 per cent in 2014-15, from 13+ per cent in the previous two years, and a recent years’ high of 23.6 per cent in 2010-11. The pace was also the lowest among bank credit deployment by major sectors.

The share of infrastructure sectors in outstanding bank credit has gone up remarkably from 12.5 per cent to 15.3 per cent in 2014-15, and the power sector with its share increasing from 6.2 per cent to 9.2 per cent was the major beneficiary in credit disbursement in infrastructure segment. Escalating exposure to long gestation, delay-crippled infrastructure sectors largely following prodding from the government appears to be a major factor behind shoot-up in stressed assets in the banking sector.

Among the other segments in industry, bank credit to basic metals and metal products accounted for 14.5 per cent of bank credit to industry, with iron and steel accounting for two-third of this credit; textiles accounted for 7.6 per cent; and chemicals and engineering 5.8 per cent each of bank credit .

Sub-sectors in industry recording above-industry growth rate of 5.6 per cent during 2014-15 included food products 17 per cent with sugar industry recording 19.6 per cent increase (due probably to clearing sugarcane growers’ dues), infrastructure 10 per cent with power generation and distribution recording 14 per cent, and construction industry 19.9 per cent increase. Against this, outstanding bank credit to petrochemical companies declined 12 per cent.

The share of micro and small enterprises in total bank credit to industry was around 14 per cent during 2014-15, and the share has seen some erosion in recent years. The share of medium size enterprises dropped from 10 per cent to 5 per cent over this period. This would imply that the share of large industry units in bank credit to industry has increased over last five years. By the way, it is this segment that has perhaps seen spike in non-performing loans.

Services
Services sectors accounted for 23.4 per cent of total non-food credit extended by banks, against recent years’ peak of 24.6 per cent during 2010-11. Outstanding credit to the sector increased by 5.6 per cent during 2014-15, which is one-third of the rate a year ago, and also lower than 8.6 per cent rise in the aggregate non-food credit. Even as bank credit to transport operators, computer services and tour operators declined during 2014-15, bank credit to trade sector escalated 12.1 per cent, against 17 per cent during the preceding year, and 21 per cent average during 2011-12 and 2012-13. Because of an above aggregate service growth rate, the share of trade in services has gone up from 23 per cent in 2009-10 to 26 per cent during 2014-15. Both retail and wholesale trade have shared this gain.

Bank credit to commercial real estate increased 8.9 per cent during 2014-15, against 22.4 per cent in the preceding year. Bank lending to commercial real estate accounted for 12 per cent of total bank credit to services sector.

The share of bank credit to non-banking financial entities in total credit to service sector increased from 15 per cent to 22 per cent between 2009-10 and 2014-15.

Personal loans
Personal loans increased 15.4 per cent during 2014-15, maintaining the rate recorded a year ago. The rate is thrice that for industry and services. Personal loans account for a fifth of total bank loan portfolio. With lower incidence of stressed assets in this segment, relative to corporate loans, the segment has remained at the centre in banks’ lending initiatives. Housing loans accounted for a half of personal loans. Vehicle loans accounted for around 10 per cent, and consumer durable loans 1 per cent.

Priority sector
Priority sector lending, included in various sub-sectors, increased 7.7 percent during 2014-15, which is one-third of the rate a year ago.

Agricultural loans quickened the pace from 13.5 per cent to 15 per cent. Farm sector loans accounted for a little less than two-fifth of priority sector lending in the country. This was the only segment in priority sector lending which recorded acceleration in the rate.

Bank credit to MSE segment increased 7.4 per cent, a fourth of the pace a year ago, while that to manufacturing segment declined (35 per cent increase). Bank credit to weaker sections increased 5 per cent, one-eighth of the pace a year ago, whereas that for export declined over the year. Housing loans, mainly for small amounts, categorised under priority sector increased 6.7 per cent, half the pace a year ago. The pace was also half of that for all housing loans. Priority sector housing loans account for around half of total housing loans under classified under personal loans. Education loans increased 2 per cent (10 per cent).

GROSS NON-FOOD CREDIT BY SECTOR
Rs. billion
% Increase
22-03-2013
21-03-2014
20-03-2015
2013-14
2014-15
Agriculture & Allied Activities 5,899 6,694 7,700 13.5 15.0
Industry (Micro & Small,;Medium and Large ) 22,302 25,229 26,651 13.1 5.6
Of which, Infrastructure 7,297 8,398 9,247 15.1 10.1
Power 4,158 4,883 5,577 17.4 14.2
Roads 1,313 1,574 1,679 19.9 6.7
Services 11,519 13,370 14,120 16.1 5.6
Personal Loans 15,398 18,781 20,222 22.0 7.7
Of which, Housing (includingPriority Sector Housing) 4,567 5,408 6,309 18.4 16.7
Vehicle Loans 1,111 1,304 1,505 17.4 15.4
Total non-food credit 48,696 55,660 60,430 14.3 8.6
Priority Sector 15,398 18,781 20,222 22.0 7.7

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