According to data released by the Reserve Bank of India, outstanding bank credit on the last Friday of September was Rs 109.5 lakh crore. Of this amount, the share of loans to industry fell to 26% (Rs 28.3 lakh crore) from 27% a year earlier. Personal loans, which accounted for a quarter of all bank loans in September 2020, rose to 27% (Rs 29.2 lakh crore) at the end of September 2021.
The decline in bank credit to the industrial segment is largely explained by the deleveraging of businesses in basic industries. Loans to steel industries fell by Rs 39,249 crores and loans to chemicals (which include fertilizers, drugs and petrochemicals) fell by Rs 10,146 crores in the six months to September. The few sectors that have seen credit growth are roads, ports and power. However, even this was not enough to post positive credit growth in the infrastructure segment.
The overall outstanding credit to large industry decreased by 5% during the first six months of the financial year. This caused industrial loan growth to fall to 2.3% despite the rise in credit to small and medium-sized businesses.
In the retail segment, banks have added Rs 20,096 crore of home loans to their portfolio over the past six months. They have also increased their car loan and gold loan book by Rs 3,000 crore each. Other personal loans increased by Rs 45,000 crore. The overall loan outstanding in the personal loan segment increased by Rs 73,000 crore in the six months ended September 2021. This expanded the personal loan portfolio to Rs 29.18 lakh crore.
The data seems to indicate that banks have taken market share from finance companies in the credit market. Typically, NBFCs borrow from banks and debt markets and lend. Bank credit to NBFCs, which is the largest component of lending to the services sector, declined by Rs 61,124 crore over the past six months. This resulted in a decline in the share of credit to NBFCs from 9% (Rs 9.4 lakh crore) at the end of March 2021 to 8% (Rs 8.8 lakh crore) at the end of September 2021. This resulted by outstanding bank credit to the services sector. down 3% since March 2021.
According to bankers, the decline in bank credit to large corporations could be attributed to their deleveraging coupled with the shift to the debt market where cheaper money is available through commercial paper. Some companies see better cash flow realizations and don’t feel the need to borrow.
In the NBFC segment, the classification of a large borrower as a non-performing asset by banks could have contributed to the decline in the segment. The real estate loan portfolio shows more consistency and does not occasionally contract like the other segments because real estate loans are long-term and new disbursements have a cumulative impact on the size of the portfolio.