The government’s continued push towards building infrastructure has led to a sharp rise in bank credit growth to the sector over the last 10 months, reversing the declining credit trend seen over the previous two years. According to Reserve Bank of India data, bank credit outstanding to the infrastructure sector rose by over Rs 95,000 crore or 10.8 per cent between April 2018 and January 2019 to Rs 9.86 lakh crore.
This is in sharp contrast to the contraction in bank credit outstanding witnessed by the sector over the previous two years. While the bank credit outstanding to the sector stood at Rs 9.64 lakh crore as of March 2016, it declined to Rs 9.06 lakh crore by March 2017 and further down to Rs 8.90 lakh crore by March 2018.
In the last 10-month period, while the overall bank credit has grown from 10.4 per cent in April 2018 to 13.1 per cent, that to the infrastructure sector (which accounts for almost 12 per cent of the total bank credit) rose from (-)1.3 per cent in April to 12.6 per cent in January 2019. A closer look at the data shows that even the pick-up in credit growth for the industry overall is primarily on account of rise in bank credit to the infrastructure segment.
During the 10-month period (April 2018-Jan 2019), credit to overall industry (which includes infrastructure) rose from 1 per cent in April 2018 to 5.2 per cent in January 2019, primarily on account of uptick in the infrastructure segment. The absolute growth in credit outstanding to infrastructure (Rs 95,600 crore) was much higher than the expansion in credit outstanding to industries (Rs 50,700 crore).
In January, while the credit growth for infrastructure stood at 12.6 per cent, that for basic metals and metal products and textiles contracted by 10.3 per cent and 3.1 per cent respectively. While infrastructure accounts for the largest chunk of credit outstanding to industry, metals and textiles are next two by size.
Rashesh Shah, chairman and CEO, Edelweiss Group, said, “Infrastructure credit growth was also going down since banks were making provisions for these loans. Since that is mostly over now, and growth in construction, affordable housing and renewable energy is picking up, it is driving credit growth in this segment. We have also seen that in last 5-6 months, capital expenditure cycle has picked up. Consumption has now slowed down a bit but capex is picking up.”
Within infrastructure, of the total rise in credit of over Rs 95,600 crore, 36 per cent of it came to the power sector, while 22.6 per cent and 8.6 per cent came to roads and telecom respectively. Incidentally, 33 per cent went to other infrastructure.
Other infrastructure segment has seen the credit outstanding grow significantly by 26 per cent from credit outstanding of Rs 1.2 lakh crore to Rs 1.51 lakh crore in January 2019. In fact, in each of the five months between September 2018 and January 2019, the year-on-year credit grew between 26 and 35 per cent.
D K Pant, chief economist, India Ratings, said that the high credit growth for infrastructure sector is in line with the pick-up in economic activity. “Activity has picked up in the road sector and other areas of infrastructure. Government has been awarding a lot of contracts, leading to rise in activity and credit demand,” he said.
While other infrastructure saw a sharp rise in credit demand, market participants say that among other infrastructure segments, affordable housing that was granted infrastructure status in 2017-18, has been witnessing a strong growth in credit demand. “Affordable housing segment growth too has led to rise in credit growth” Shah said.
While the infra push is mostly from the government side, the credit demand is also being primarily driven by central and state government entities. Amit Tripathi, Chief Investment Officer-Fixed Income, at Reliance Mutual Fund, said, “Infrastructure credit growth is majorly driven by PSUs and government projects in roads and railways. Even in the affordable housing segment, it is the state governments that are driving growth.”