Growth in bank lending is slowing
Growth in bank lending is slowing
As on 9 September, non-food credit growth, on a year-on-year (y-o-y) basis, was 20.1%. That’s very high and doesn’t seem to square with the slowdown in economic activity. All the more so because at the end of July, y-o-y growth in non-food credit was 18.2%.
Well, that little mystery has been solved. The Reserve Bank of India’s month-end statement on the industry-wise deployment of gross bank credit shows that outstanding loans to the “petroleum, coal products and nuclear fuels" sector increased by ₹ 8,404 crore in August (between 29 July and 26 August). Over the same period, non-food credit increased by ₹ 31,490 crore. In short, 26.7% of the rise in non-food credit during August was on account of the loans to the petroleum sector. Most of the increase was undoubtedly on account of the under-recoveries of oil marketing companies that forced them to borrow more from banks to meet their cash flow needs.
Also See | Clogged Credit (PDF)
Growth in loan outstandings to the infrastructure sector was the other big increase during August, accounting for ₹ 6,174 crore. Taken together, growth in infrastructure lending and loans to the petroleum sector accounted for 46.3% of the total increase in non-food credit in August.
Also, while y-o-y growth in non-food credit is more or less at the same rate as last year, the fact is that non-food credit growth has slowed this fiscal. While growth has been 2.5% this fiscal year (till 26 August), it was 3.3% over the same period in fiscal 2011 (FY11).
Interestingly, there has been zero growth in loan oustandings to the services sector this fiscal. Growth in personal loans has been 2.8% so far in FY12 compared with 4% over the corresponding period last year, although lending to the housing sector has been higher than last year.
Growth in loans to industry, however, has held up well at 5.8% so far this fiscal, the same rate as that during the year-ago period. But while outstanding loans to the petroleum sector fell by as much as 26.7% during the first five months of FY11, they are up 6.9% over the same period in FY12.
In short, the real picture shows that bank lending, too, has actually been slowing, despite the headline y-o-y numbers for non-food credit showing strong growth.
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