While the government has been pushing construction of roads, affordable housing and expansion of railway network among others across the country, data released by the Reserve Bank of India shows that even as additional bank credit at broad industry level has grown at snail’s pace over the last year, infrastructure segment within the same has been an outlier.
Data shows that bank credit demand for the infrastructure segment rose by 18.5 per cent or Rs 1.65 lakh crore in financial year 2018-19, thereby accounting for almost 89 per cent of the additional credit demand of Rs 1.86 lakh crore by the overall industrial sector in FY19.
The credit growth for infrastructure segment in FY19 is the highest in at least seven years both in absolute and in per cent terms. It grew by 16.5 per cent in March 2013.
While the total credit for the overall industry rose by 6.9 per cent from Rs 26.99 lakh crore in March 2018 to Rs 28.85 lakh crore in March 2019, that for the infrastructure segment rose by 18.5 per cent from Rs 8.9 lakh crore to Rs 10.55 lakh crore in over the same period.
Within the infrastructure segment, while road and power sector witnessed a credit growth of 12.3 per cent and 9.5 per cent, respectively, in March 2019 over March 2018, telecom and other infrastructure (other than road, power and telecom) emerged as major contributors with credit growth rates of 36.6 per cent and 53.5 per cent, respectively, in the same period.
In fact, of the total growth of Rs 1.65 lakh crore in credit outstanding for infrastructure segment in FY19, other infrastructure accounted for over Rs 64,000 crore or 39 per cent. Power sector accounted for 30 per cent of the additional credit demand by the infrastructure segment in the fiscal.
Economists say that jump in credit growth for infrastructure sector is in line with the pick up activities of road construction, affordable housing and other areas of infrastructure. “Government has been awarding lot of contracts leading to a rise in activity and credit demand,” said an economist.
The other infrastructure segment has seen credit outstanding grow significantly from Rs 1.2 lakh crore in March 2018 to Rs 1.84 lakh crore in March 2019. In fact, in each of the seven months between September 2018 and March 2019, the year-on-year credit growth stood over 26 per cent with a high of 53.5 per cent in March 2019.
Market participants say that the other infrastructure segment has witnessed a sharp growth primarily on account of pick up in construction activity of affordable housing that was granted infrastructure status in 2017-18.
The infra status enables such projects to avail the associated benefits such as lower borrowing rates, tax concessions and increased flow of foreign and private capital.
“Affordable housing segment growth has witnessed a rise in credit growth,” said the head of a housing finance company.
At a time when the consumption demand is stagnating, some feel that the rise in credit demand from infrastructure segment is a big positive. “Credit growth for infrastructure was earlier missing as banks were making provisions for loans. However, since that is mostly over now and there is visible growth in construction, affordable housing and renewable energy, it is driving credit growth in this segment,” said an industry insider.
The credit growth in the infrastructure segment has come back over the last financial year, reversing the declining credit trend seen over the previous two years. The bank credit outstanding for the sector came down from Rs 9.64 lakh crore in March 2016 to Rs 9.06 lakh crore in March 2017. It further went down to Rs 8.90 lakh crore by the end of March 2018.