Bank Credit At 10pc Compared With 4.7pc last year; So Where Has All The Credit Gone?

As of Dec 22, 2017, the year-on-year growth in bank credit has been stronger at 10.7% compared with 4.7% last year. This is a positive sign which if sustained could point towards a recovery in terms of demand for funds for investment purposes. Further, with o/s CPs (December 15) being higher also by 21% compared with 4.7% last year, the sum of bank credit and CPs has grown at a higher rate of 11.2% on a yearly basis for the period ending Dec 22nd, says Care Ratings in a just-released report.

According to it, the increase in credit during this period was contributed to a large extent by the growth in credit in the period of December 2016-March 2017 with an increment of Rs 5,338.3 bn out of a total increase of Rs 7,793.4 bn thus accounting for around 68% of total increase in credit. Further, the extra fortnight in March 2017 had involved an increase of Rs 3162.2 bn which is around 40% of the incremental credit.

Table 1 above provides information on y-o-y growth in bank credit to the broad sectors. The higher growth in credit has emanated from the services and personal loans segments, while growth to manufacturing/industry has turned negative though low at 1% while that to agriculture has slowed down. These two segments accounted for around 87% of the incremental credit during this period.

Within industry, while micro and large have witnessed positive growth rate, the mid-sized companies had a decline. The major services sectors i.e. NBFCs, trade, professional services, transport witnessed high growth rates in 2017. Within personal loans housing and vehicle loans have led the improvement in growth in credit.

The takeaway is that industry is yet to witness a significant increase in growth in credit and hence the recovery in investment cycle is yet to be significant.

From Table 2 it may be viewed that:

– 13 out of the 19 industry groups witnessed improvement in credit growth.

– The two largest industries in terms of share in outstanding credit are infrastructure and metals accounting for almost 50% of the total. Infra continued to de-grow while growth in metals was lower than that last year. Their stressed assets levels were also of a high order as of March 2017.

– The next three important industries in terms of share in aggregate credit were chemicals, food processing, and textiles and accounted for 19% of the total. All of them witnessed higher growth rates.

Concluding remarks:

– The higher growth in credit during the first 9 months of the year needs to be interpreted in the relevant perspective.

– A large part of this growth which is reckoned on a y-o-y basis is due to the sharp growth witnessed in the period Dec 2016-March 2017, with the last fortnight of March providing a major impetus.

– Data available up to November suggests that growth in credit has been more buoyant in case of services and personal loans. In case of industry, the micro & small and large companies have witnessed positive growth rates.

– NBFCs and trade have dominated services while personal loans are largely driven by housing and vehicle segments.

– Within industry, the largest constituents which reflect investment activity in the economy i.e. metals and infrastructure have witnessed low growth in credit.


(Disclaimer: This report is prepared by the Economics Division of CARE Ratings Ltd. CARE Ratings has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Ratings is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE Ratings has no financial liability whatsoever to the user of this report)