Workers at assemble and test twin-bolt locks at a Palam Locks & Hardware factory in the Tala Nagri Industrial Area of Aligarh, Uttar Pradesh. (Photographer: Udit Kulshrestha/Bloomberg)

Bank Credit Growth To Industry At A Three-Year High In January

Bank credit growth to industry, which had slowed sharply over the last few years, continued to rebound and hit a three-year high in January, showed data released by the Reserve Bank of India on Thursday.

Credit from commercial banks to the industrial sector grew by 5.13 percent over last year to Rs 27.5 lakh crore as of January 18, 2019. The pace of growth is the highest since 2016, the data showed.

Overall non-food bank credit increased by 13.1 percent in January 2019 as compared with an increase of 9.5 percent in January 2018.

Credit growth to industry slowed sharply starting 2016 as a clean-up of bank balance sheets led to a surge in corporate bad loans. In particular, large corporate defaults soared, leaving banks cautious about further lending. This period also coincided with slower growth in private investment which subdued the demand for credit.

Both those factors are now reversing. Private investment has picking up over the last one year and the pace at which incremental bad loans are being generated is slowing.

Credit Supply to Large and MSME Companies

Credit growth to large and medium sized industries has picked up, shows the data.

Large enterprises saw a 6.1 percent rise in bank credit supply over last year. Medium sized enterprises saw a 7 percent increase in credit supply in January 2019 over last year. Micro and small sized enterprises saw a small de-growth in credit supply.

While banks have tried to diversify their loan book and reduce concentration risk, the proportion of credit going to large enterprises has continued to rise.

Across non-industrial segments, credit growth to NBFCs remained strong at 48.3 percent on a year-on-year basis. Over the course of the financial year between April-January 2019, credit to NBFCs has risen 12 percent compared to -3.8 percent in the same period last year. This reflects a shift in funding patterns for NBFCs who have moved away from market funding and back towards bank funding.

Retail loans, grew 16.9 percent in January. The strongest growth in this segment continued to come from credit card outstandings, ‘other personal loans’, which includes unsecured loans, and housing loans.