Updated: September 3, 2021 10:36:27 am
Credit offtake by India Inc and the services sector remained subdued over the last 12 months, but retail loans, driven by gold loan and credit card business, have shown a significant uptick. Retail or personal loans — which account for 26 per cent of total bank credit — jumped 11.2 per cent over 12 months till July 2021 compared with 9 per cent over the previous 12 months.
Within retail loans, the gold loan outstanding soared by 77.4 per cent, or Rs 27,223 crore, to Rs 62,412 crore by July 2021 on a year-on-year basis. SBI, the largest bank, reported a 338.76 per cent growth in gold loans as of June 2021. “The total gold loan book of the bank was Rs 21,293 crore,” said an SBI official.
But the huge jump in the gold loans business is also an indicator of Covid-19-induced distress following a national lockdown, job losses, salary cuts and higher medical expenses. “People find it easier to get loans by pledging gold. Seeing an opportunity, banks stepped up lending since recovery in this business is not cumbersome,” said an official of a nationalised bank, who did not wish to be named.
Credit card outstanding also jumped 9.8 per cent (Rs 10,000 crore) to Rs 1.11 lakh crore during the 12-month period ending July 2021. While this suggests a pick up in discretionary spending, it also points to consumers resorting to high cost borrowing to meet their needs. In the previous 12 months ending July 2020, credit card outstanding had grown 8.6 per cent.
In absolute terms, credit outstanding for the retail segment increased by Rs 2.88 lakh crore to Rs 28.58 lakh crore as of July 2021, according to the latest RBI data. When compared with this, credit offtake by the industry and the services sector were sluggish at one per cent and 2.7 per cent, respectively. These two segments account for more than half of the total credit outstanding of Rs 108.32 lakh crore.
Within the retail segment, housing loans – with the highest share of 51.3 per cent – growth slowed to 8.9 per cent to Rs 14.66 lakh crore as compared with double-digit 11.1 per cent growth during the previous 12 months. The housing loan segment took a hit during the brutal second wave of the pandemic, with no reasonable pick-up in the housing segment, according to Care Ratings.
Whom did the banks lend to
Latest credit data reveals that bank loans to industry and the services segment, continue to remain subdued. Personal loans have, however, grown across categories, except housing which accounts for more than 50% of retail lending.
On the other hand, RBI data reveals credit to large industries contracted by 2.9 per cent to Rs 22.75 lakh crore in July 2021 against a growth of 1.4 per cent a year ago. As a result, overall credit growth to industry, which is yet to make new investments, remained more or less flat at 1 per cent in the 12 months up to July 2021 as against 0.9 per cent in the previous 12 months. One reason for the decline is de-leveraging (reducing loans) and access to the bond market.
According to the RBI, credit to medium industries registered a robust growth of 71.6 per cent at Rs 1.63 lakh crore in July 2021 compared with a contraction of 1.8 per cent a year ago. Credit to micro and small industries also increased by 7.9 per cent compared with a contraction of 1.8 per cent a year ago. This was driven by the government’s initiatives like the Emergency Credit Line Guarantee Scheme extended to SMEs to overcome the stress caused by the pandemic.
Credit growth to the services sector slowed to 2.7 per cent in July 2021 from 12.2 per cent in July 2020, mainly due to deceleration in credit growth to NBFCs and commercial real estate, the RBI said. India’s services sector remained in contraction territory for the third straight month in July, as business activity, new orders and employment declined further largely due to the Covid-19 pandemic and local restrictions, IHS Markit survey said. The seasonally adjusted India Services Business Activity Index was at 45.4 in July, below the 50 mark indicating contraction.
Vehicle loans rose by 7.3 per cent to Rs 2,65,951 crore by July 2021 as against 2.7 per cent growth in the previous year. Credit to agriculture and allied activities continued to perform well, registering an accelerated growth of 12.4 per cent in July 2021 as compared to 5.4 per cent in July 2020.
Meanwhile, banks have cut down their exposure to several sectors including telecom (13.5 per cent decline), cement (21.5 per cent decline) and metals and metal products (13.3 per cent decline) in the last 12 months amid the spectre of defaults, de-leveraging and access to the bond market for fund requirements. Loan outstanding to ports, construction, fertiliser, leather and sugar also declined during the period.
Banks, however, increased their exposure to the road segment by over Rs 54,000 crore or almost 30 per cent to Rs 2.37 lakh crore and gem & jewellery by over Rs 6,000 crore to Rs 61,404 crore.
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