India Inc, especially medium and small industries, is yet to show any improvement in new investments and expansion if bank credit offtake is any indication. Loans to medium and micro & small industries declined 9.5 per cent and 3.8 per cent respectively during the quarter ended June, the Reserve Bank of India said.
However, credit offtake by large corporate s grew two per cent year-on-year (y-o-y). Indicating the muted corporate loan growth figures that are being reported by individual banks in the quarter ended June, outstanding bank credit to all the industries recorded just a 0.6 per cent (y-o-y) growth to Rs 26.5 lakh crore in June, RBI data released on Friday showed.
Within industry, negative loan growth was seen across several sectors. Loans to the power sector — the most indebted of all — for instance, fell 7.7 per cent (y-o-y) to Rs 5.28 lakh crore. This pushed loan growth to the infrastructure sector as a whole into the negative territory. Negative loan growth was also seen in several other large borrower sectors like food processing (-9.3 per cent) and gems & jewellery (-1.4 per cent).
On the other hand, loans to the second most indebted sector of the economy — iron & steel — grew in double digits at 10.3 per cent (y-o-y) to Rs 3.13 lakh crore.
RBI data also reveals that in the month of June, personal loans continued to grow with credit card outstanding growing by 29.2 per cent (y-o-y), followed by vehicle loans and other personal loans, both of which grew at over 20 per cent. When it comes to services, while loans to the sector as a whole grew by 9.2 per cent (y-o-y) to Rs 15.65 lakh crore, those to professional services grew by 31.7 per cent to Rs 1.13 lakh crore, while those to wholesale trade fell 5.4 per cent to Rs 1.71 lakh crore. RBI Governor Raghuram Rajan had recently said the slowdown in credit growth has been largely because of stress in the public sector banks. “This will not be fixed just by a cut in policy rates. Instead, what is required is a clean-up of the balance sheets of public sector banks, which is underway and needs to be taken to its logical conclusion,” he said last week.
Rating agency ICRA expects system-wide non-food bank credit to expand by 11-12 per cent in FY2017, with private sector banks to continue record faster growth. Considering the realignment of interest rates on small savings schemes that compete with bank deposits, as well as the expected redemption of FCNR (B) deposits that were mobilised in September-November 2013 for a three-year tenure, ICRA expects bank deposits to expand by 10-11 per cent in FY2017. Bank deposits and non-food credit rose by a modest 9.2 per cent and 10.9 per cent, respectively, between March 20, 2015 and March 18, 2016.
Karthik Srinivasan, senior vice president and CoHead-Financial Sector Ratings, ICRA, said, “bank deposit and credit growth are expected to record a mild uptick in FY2017, printing in the low double-digits.” The extent of pickup in credit growth will largely be dependent upon the magnitude of off-take in credit-intensive sectors as well as easing of supply-side constraints, he said.
While interest rates in the capital markets were softer than banks’ base rates during FY2016, the implementation of the marginal cost of funds based lending rate (MCLR) from April 1, 2016 could improve banks’ competitive position and boost bank credit growth to an extent. However, issuance of UDAY Bonds would continue to exert downward pressure on bank credit growth in FY2017.
ICICI Bank MD & CEO Chanda Kochhar said that she doesn’t expect the bank’s corporate loan book to grow faster than double digits during the current fiscal. “..we had said that we will continue to probably see a target of 18 per cent for our domestic loan book which will be mainly driven by growth in the retail segment. So, retail will grow at about 22 per cent and corporate will grow in low double digits and that is how the overall growth of 18 per cent will be possible,” she said last week.
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