Credit offtake by India Inc slides during April-August

“Deceleration in credit growth to industry was observed in all major sub-sectors, barring construction, glass and glassware, rubber plastic and their products, leather and leather products, beverages and tobacco and mining and quarrying,” the RBI said.

While credit growth to large industries declined by 0.6 per cent, medium industries by 2.2 per cent and priority sector advances by 1.6 per cent, agriculture advances in the priority category increased by 8.2 per cent. On a Y-o-Y basis, credit to agriculture increased by 18.8 per cent in August 2014, up from 12.1 per cent in August 2013. During the five month period, housing loans rose by 6.2 per cent and auto loans by 5.7 per cent. While credit card outstandings jumped by 12.3 per cent during the five months, loans against fixed deposits fell by 16 per cent.

A major factor which has impacted credit growth to industries is the rising stressed asset quality of banks. Further, stringent debt revamp norms have also put a spanner in their works. Bankers have already expressed their dilemma on the decline in credit offtake. The slowdown in credit pick up from corporates may prevent banks from announcing aggressive festive season offers for loan seekers. SBI chairman Arundhati Bhattacharya had indicated that banks would need to subsidise festive offers from corporate demand. “If there is no off-take on the corporate side, where will I subsidise those offers?” she had said on Sunday.

Further, as banks are nudging their corporate clients to raise money from abroad, the rating upgrade in outlook would help reduce cost of funds for India Inc. “A pick up in credit growth relative to the deposit growth in the second half of the ongoing fiscal and during the festive season may push interest rate upwards. A downward movement would be possible once the RBI cuts the repo rate,” Care Ratings said in a note.