Retail, Large Industry Share In Fresh Credit Shrinks: RBI

The share of retail loans fell sharply in the twelve months till November 2020, as lenders tempered their enthusiasm to lend to this segment after the Covid-19 crisis hit jobs and incomes.

Data released as part of the Reserve Bank of India's monthly bulletin showed that share of incremental credit to the retail sector declined by 13 percentage points between November 2019 and November 2020.

• Share of retail credit in incremental loans declined to 45.8% as of November 2020 from 58.3% a year earlier.
• The share of credit to industry, inclusive of repayments, went below zero to -3.6% from 11%.
• Loans to the services sector, however, rose to 39.5% of incremental credit from 18.8% a year earlier.
• Loans to the agriculture and allied segment, too, rose.

Overall non-food bank credit grew 6% year-on-year in November against 7.2% a year earlier as private banks became more cautious. Public sector banks continued to lend at a faster clip, as is often the case during crises.

• For private lenders, non-food credit growth fell 450 basis points over a year earlier to 9% in November 2020.
• Public sector banks reported a growth of 5.2%, higher than 4.5% a year earlier.

According to the central bank's assessment, fresh credit adjusted for repayment grew 8.1% between April and October 2020, compared with a 22.8% growth between April 2019 and February 2020.

Credit To Medium-Sized Industries And Services

While bank credit to large industries fell, loans to medium industries have shown a resurgence. Loans to micro, small and medium enterprises, accounting for 18% of total credit to industry, rose 5% year-on-year in November 2020 against a contraction of 0.6% a year earlier.

Credit to MSMEs Since July 2020, the MSME credit has shown an improvement after the government announced a emergency credit line guarantee scheme. Both public and private banks increased their loan exposures this category, the RBI said.

Both categories of banks also reduced their exposure to the infrastructure segment, especially to telecom and power sectors.

Credit to the services rebounded after the initial impact of the pandemic, led by transport operators, trade services, tourism and restaurants. Non-bank finance companies, which account for most of the services sector loans, reported slower growth.

The RBI has been taking targeted measures to ease liquidity stress among NBFCs. “The inclusion of NBFCs in TLTRO (targeted long-term repo operations) on tap scheme by the Reserve Bank in its monetary policy statement of February 5, 2021 is expected to facilitate lending by NBFCs to various sectors of the economy,” the bulletin said.

Slower Retail Growth

The Covid-19 lockdown and the weak macroeconomic conditions had a direct impact on even the most secure loan segments. Bank credit to housing, accounting for nearly 50% of all retail loans as of November 2020, rose 8.5% year-on-year, less than half of 18.3% a year earlier.

“The sharp deceleration (in housing loan growth) is a cause of concern because of the adverse effect it may have on sectors like steel, cement, construction, etc.,” the RBI bulletin said. However, it said, there were signs of a turnaround as evidenced by a spurt in property purchases in the recent period, mainly on the back of support extended by the government to this sector. “As the economy gathers momentum in 2021 and beyond, housing loans are expected to pick up.”

Outstanding loans to the credit card segment saw a sharp deceleration, since outlets accepting such payments remained shut during the national lockdown. According to the RBI's analysis, the outstanding credit card loans have already started recovering since the restrictions were lifted.

Retail vehicle loans grew faster during the pandemic. That, according to the RBI, was largely because people preferred buying personal vehicles rather than depend on public transport. Outstanding vehicle loans rose 10% year-on-year in November 2020 against a 4.7% growth a year earlier.