Personal loans, including housing, now at 26.7% of bank credit, highest ever
Illustration: Binay Sinha
The share of industrial credit in banks loans, after years of sluggish growth, declined to a record low of 26 per cent during the first five months of FY22, down from 26.6 per cent during FY21.
At its peak in FY13, industrial credit accounted for nearly 46 per cent of loan disbursements.
In comparison, personal loans, including home loans, accounted for 26.7 per cent of bank credit during the first five months of FY22, up from 26.1 per cent at the end of March this year and a low of 18.2 per cent in FY12.
Outstanding industrial credit was up just 2.3 per cent year-on-year during the first five months of FY22 to Rs 28.2 trillion at the end of August. In comparison, the disbursement in personal loans by banks was up 12.1 per cent YoY during the first five months of FY22 to reach 28.94 trillion at the end of the same month.
Analysts say this hints at a continued slowdown in private sector investment and capex in the industry.
“Consumer demand continues to drive economic recovery in the country while companies continue to deleverage their balance sheet rather than invest in new projects or capacity expansion,” said Dhananjay Sinha, managing director and chief strategist, JM Finance Institutional Equity.
He expects corporate capex to take off in the second half of FY23 or early FY24 once a sustained rise in consumer demand results in higher capacity utilisation.
Others point at a steady fall in investment at macro level.
“The bank credit data confirms what we see in the gross domestic product (GDP) data. The share of investment in India’s GDP declined to a multi-year low last fiscal year as companies remain reluctant to invest,” said Madan Sabnavis, chief economist, CARE Ratings.
The share of investment, or gross fixed capital formation, declined to a 17-year low of 27.1 per cent of India’s GDP in FY21, down from 29 per cent a year ago and an all-time high of nearly 39 per cent in FY10, according to the data from National Statistical Organisation.
According to Sabnavis, sluggish growth in banks’ credit to industry also shows in the bond market.
“Very few companies in the manufacturing or the industrial segments are borrowing from the corporate bond market and most of the bond issuances are either from non-banking finance companies or public sector firms such as NTPC,” he added.
In all, banks disbursed fresh industrial loans worth Rs 62,000 crore in the April-August 2021 period while their retail book was up Rs 3.13 trillion during the period.
If the growth trend in the first five months of FY22 persists during the rest of the fiscal year, FY22 would be the eighth year in a row when retail credit or personal loans have grown at a faster pace than industrial credit.
Industrial credit grew at a compound annual growth rate (CAGR) of just 2 per cent in the last seven years, growing from Rs 25.2 trillion at the end of March 2014 to Rs 28.96 trillion at the end of March this year.
In comparison, banks’ retail book grew at a CAGR of 16 per cent during the period, from Rs 13.4 trillion at the end of March 2014 to Rs 28.5 trillion at the end of March this year.
Non-food credit grew at a CAGR of 10.2 per cent during the period, from Rs 55.3 trillion to Rs 108.9 trillion at the end of March this year.