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Tuesday, September 21, 2021

Credit offtake of large cos hit, MSMEs gain on ECLGS push

Credit offtake by the industry had grown 2.2 per cent in the previous year.

Written by George Mathew | Mumbai |
July 31, 2021 3:38:27 am
Credit offtake by India Inc contracted by 0.3 per cent to Rs 28,67,304 cr by June 18, 2021

With the second wave of the Covid pandemic hitting corporates’ plans, credit offtake by India Inc contracted by 0.3 per cent to Rs 28,67,304 crore by June 18, 2021 despite 5.9 per cent growth in the overall non-food credit offtake on a year-on-year basis and a host of government schemes to revive the economy. Credit offtake by the industry had grown 2.2 per cent in the previous year.

The decline is due to 3.4 per cent contraction — or Rs 82,531 crore — in credit offtake by large industries to Rs 23,44,313 crore during the 12 months ended June 18, 2021, as against growth of 3.6 per cent in the previous year, according to the latest RBI data. Size-wise, credit to medium industries registered robust growth of 54.6 per cent to Rs 147,875 crore in June 2021, compared to a contraction of 9 per cent a year ago.

According to the RBI, credit growth to micro and small industries accelerated to 6.4 per cent in June 2021, compared to a contraction of 2.9 per cent a year ago. The rise in credit offtake by medium and small industries is due to a host of government initiatives like the Emergency Credit Line Guarantee Scheme (ECLGS) to tackle the economic downturn created by the Covid pandemic. “Corporates are now largely using the bond and equity mobilisation route for their fund requirements. Many have cut costs and sold off non-core assets to raise funds,” said a senior bank official.

Personal loans registered an accelerated growth rate of 11.9 per cent in June 2021, compared to 10.4 per cent a year ago, primarily due to high growth in loans against gold jewellery and vehicle loans. Credit card outstanding rose 5.3 per cent to Rs 1,02,757 crore from Rs 97,586 crore a year ago. However, card outstanding declined by over Rs 13,000 crore in the last three months.

“Credit to agriculture and allied activities continued to perform well, registering an accelerated growth of 11.4 per cent in June 2021, compared to 2.4 per cent in June 2020,” the RBI said.

Within industry, credit to food processing, gems & jewellery, glass & glassware, leather & leather products, mining & quarrying, paper & paper products, rubber, plastic & their products, and textiles registered high growth in June 2021, as against the corresponding month of the previous year. However, credit growth to all engineering, beverages & tobacco, basic metal & metal products, cement & cement products, chemicals & chemical products, construction, infrastructure, petroleum coal products & nuclear fuels and vehicles, vehicle parts & transport equipment decelerated or contracted.

The RBI said credit growth to the services sector decelerated to 2.9 per cent in June 2021, from 10.7 per cent in June 2020, mainly due to contraction in credit growth to commercial real estate, NBFCs and tourism, hotels & restaurants. However, credit to trade segment continued to perform well, registering accelerated growth of 11.1 per cent in June 2021 as compared to 8.1 per cent a year ago.

The recent additional measures by the government to mitigate pandemic-related stress are expected to improve credit offtake. For instance, additional Rs 1.5 lakh crore of ECLGS disbursements would further help the bank credit growth by providing additional support to MSMEs. A loan guarantee scheme of Rs 1.1 lakh crore to Covid-affected sectors is expected to improve the credit flow. If pending guidelines incorporate points on MFIs location, size, rating, maximum loan amount, then credit guarantee scheme could incentivise lending to smaller MFIs along with rural focused MFIs.

“The credit growth for FY22 is likely to remain in low double digit with growth expected in H2FY22 led by expansion in the economy and base effect coming into play,” said a report by Care Ratings. The downside risks include limited capex plans, lower discretionary spending compared to pre-pandemic levels, concerns over third wave, partial/complete lockdown in key states, which may impact the industrial as well as service segments, it said.

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