Bank credit grew at its slowest pace in nearly two years in September despite lower rates and the government's drive to boost lending in a slowing economy.
Non-food credit grew 8.1 percent in September compared with 11.3 percent a year earlier, according to the Reserve Bank of India's data. That's the lowest growth since in since October 2017 when non-food credit rose by 6.6 percent.
Slowing credit growth along with contraction in core sector growth in September suggest persisting stress in an economy help back by declining consumption and a crisis across non-bank lenders.
Credit growth has fallen through the year so far. In September, the moderation came from a sharp decline in growth in credit to services even as agriculture, industry and the retail sectors saw stronger demand.
- Credit to agriculture & allied activities rose 7 percent in September as compared with an increase of 5.8 percent last year.
- Credit growth to industry accelerated to 2.7 percent against 2.3 percent. Within industry, credit to large industries rose 3.4 percent year-on-year, compared to 2.9 percent last year. Credit to micro, small and medium-sized enterprises contracted.
- Credit to the services sector grew at 7.3 percent versus 24 percent. Credit to NBFCs grew 30.5 percent year-on-year in September 2019 compared to over 41 percent growth in the same period last year.
- Personal loans growth accelerated to 16.6 percent in September from 15.1 percent a year ago.
On a cumulative basis, incremental credit to infrastructure has declined, Soumya Kanti Ghosh, chief economic adviser at State Bank of India, said in a research note. This shows that the level of risk aversion in the banking system continues to remain asymmetric across banks and this needs to be quickly reversed if the economy were to capture the growth momentum, he said.
Food Credit Growth Picks-Up
Meanwhile, growth in food credit has picked up in recent months.
Food credit grew 26 percent between September 2018 and September 2019, the RBI data shows. This compares to just 2.8 percent growth a year ago.
Food credit includes loans given by banks to the Food Corporation of India FCI and state government agencies for procurement of food grains. The loans are repaid after the central government releases food subsidy. In the last few years, as FCI shifted its borrowings to the National Small Savings Fund, growth in food credit from banks declined.
This year's data, however, shows that bank borrowings for food procurement have once again risen.
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