Slow credit: to whom have banks been lending?

Slow credit: to whom have banks been lending?
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First Published: Wed, Feb 25 2009. 10 59 PM IST

Updated: Wed, Feb 25 2009. 10 59 PM IST
With year-on-year growth in bank credit slowing substantially, which sectors have been most affected? Data from the Reserve Bank of India on loan growth in various sectors is available between 29 August and 19 December. Over that period, non-food bank credit increased by 6.7%, but there was a lot of difference in the rates of growth of the various sectors.
Also See Priority Sector Takes a Hit (Graphic)
At the outset, credit outstanding on account of loans to the priority sector contracted during the period. The amount of contraction was 0.3%, which is not much, but it could mean that the very smallest borrowers have been the worst hit by the credit crunch over the period.
This was not really on account of loans to small industries, which grew by 12.5%. Nor was it because of a slowdown in loans to agriculture and allied activities, outstandings of which rose by 10.3% between 29 August and 19 December.
The slowdown in the priority sector is either on account of small business loans or, more likely, a fall in export credit or in housing loans classified as part of the priority sector.
Loan outstandings on account of credit cards increased by a mere 1% during the three-and a-half month period, probably the result of higher delinquencies among credit card users. The slowdown in housing loans is well known, but even so the fact that housing loan outstandings with banks rose by a mere 1.1% over this period shows the extent of the slowdown.
Rather surprisingly, real estate loans showed no let-up, with outstandings increasing by 12.1%. Either the banks have been foolhardy in continuing to support this shaky sector, or the rise in outstandings reflects the fact that interest and instalments are not being paid by borrowers in the sector.
The table shows the percentage rise in loan growth in a number of sectors. Note the very small rise in the gems and jewellery sector, which ties in with anecdotal evidence of large-scale distress in Surat.
Unsurprisingly, it’s very high for the petroleum industry, the result of increased borrowing by oil companies, but growth in outstandings to the infrastructure and construction sectors, too, has been pretty good.
Graphic by Ahmed Raza Khan / Mint
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First Published: Wed, Feb 25 2009. 10 59 PM IST