With lockdown hitting banking operations in April, credit growth to various segments, including priority sector, housing loan and credit card, of the economy has showed a contraction during the month. While the overall non-food credit growth contracted by 1.2 per cent, or Rs 1.10 lakh crore to Rs 91 lakh crore, loan outstanding in the personal loan segment fell by 2.50 per cent to Rs 24.90 lakh crore, a decline of around Rs 63,000 crore.
According to data released by the Reserve Bank of India (RBI), housing loan outstandings declined by around Rs 8,000 crore to Rs 13.30 lakh crore as of April 24 from Rs 13.38 lakh crore on March 27. The housing loan segment has been growing at a steady pace over the last several months. Credit card outstandings, which were rising rapidly till March, declined by Rs 11,000 crore to Rs 96,978 crore in April. Priority sector outstanding fell by 3 per cent, or Rs 86,000 crore, to Rs 28.11 lakh crore in a month as of April 24.
Credit flow to agriculture and allied activities also declined by around Rs 6,465 crore to Rs 11.51 lakh crore in April. “The decline could be due to lockdown. Credit flow which slows down in the beginning in the financial year will pick up when the lockdown is lifted in the coming months. We will have to see how credit growth is happening in the June-August period if lockdown continues beyond May 31,” said a senior banker with a public sector bank.
The real question is whether credit flow will pick up
The decline is significant as the RBI has slashed the key policy rate – repo rate – by 115 basis points to 4 per cent since March 27 this year. Credit flow which slows down in the beginning of the financial year is likely to pick up when lockdown is lifted in May. If lockdown continues beyond May 31, credit flow is likely to remain muted as April-September period is also supposed to be a slack season.
Even as the government announced a package for micro, small and medium enterprises (MSMEs), credit outstandings to the micro and small industry segment fell Rs 23,485 crore to Rs 3.58 lakh crore in the month of April.
The decline is significant as the RBI has slashed the key policy rate — repo rate — by 115 basis points to 4 per cent since March 27 this year. Banks also cut lending rates, making funds cheaper for borrowers. Domestic economic activity has been impacted severely by the 2 months of lockdown. “The top 6 industrialised states that account for about 60 per cent of industrial output are largely in red or orange zones. High frequency indicators point to a collapse in demand beginning in March 2020 across both urban and rural segments. Electricity and petroleum products consumption — indicators of day to day demand — have plunged into steep declines,” RBI Governor Shaktikanta Das said while announcing the latest repo rate cut last week.
According to the RBI, on a year-on-year (Y-o-Y) basis, non-food bank credit growth decelerated to 7.3 per cent in April 2020 from 11.9 per cent in April 2019. Credit growth to agriculture & allied activities decelerated to 3.9 per cent in April 2020 from 7.9 per cent in April 2019. Credit growth to industry decelerated to 1.7 per cent in April 2020 from 6.9 per cent in April 2019. Credit growth to the services sector decelerated to 11.2 per cent in April 2020 from 16.8 per cent in April 2019. Personal loans growth decelerated to 12.1 per cent in April 2020 from 15.7 per cent in April 2019.
On a Y-o-Y basis, credit outstandings to the industry were at Rs 28.84 lakh crore in April 2020 as against Rs 28.35 lakh crore in April 2019. Within industry, credit growth to beverage & tobacco, petroleum, coal products & nuclear fuels, paper & paper products and rubber, plastic & their products accelerated. However, credit growth to mining & quarrying, chemicals & chemical products, construction, textiles, all engineering and basic metal & metal products decelerated/contracted, the RBI said.
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