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Credit to Large Industries Declines, Inflow Rises in Services

Credit to Large Industries Declines, Inflow Rises in Services

Tuesday, 02 March 2021

Mumbai: As credit flow from banks improve with the acceleration in economic activities post the gradual lifting of the lockdown restrictions, credit growth has not been on the same lines across sectors.

As per the the Reserve Bank of India's data, loans towards large industries declined on the back of stressed assets in the segment, while that in the services sector increased.

Industrial credit includes credit to micro, small, medium and large industries, depending upon the firms' investment in plant and machinery and their turnover.

Large industries constituted around 82 per cent of the credit offtake to the industrial sector, while the micro, small and medium industries together constituted the rest in November 2020.

Credit to the industrial sector has generally remained weak in the recent years. A peak of 6.9 per cent was achieved in April 2019 but there has been a continuous decline in credit offtake since then, with credit growth turning negative in October 2020, it noted.

The recent decline in credit growth was mainly due to the large industries.

"Owing to the stressed assets in large industries, there was a general reluctance on the part of bankers to lend to these industries, with the problem getting compounded by the pandemic," it said.

The central bank's bulletin, however, noted that although credit growth to large industries turned negative in November 2020, the silver lining has been the robust growth of credit to the medium industries.

The services sector, on the other hand, witnessed a robust credit growth. Unlike the sharp moderation in growth of industrial credit and personal loans due to the pandemic, credit growth to the services sector has bucked the downtrend and posted an accelerated growth.

"This acceleration has been primarily due to 'transport operators' and 'trade'. Further, 'tourism, hotels and restaurants' also registered accelerated growth notwithstanding the pandemic," said the report.

Credit extended by both public sector banks and private sector banks to the services sector has exhibited resilience in 2020-21 so far.

The RBI bulletin showed that credit growth to agriculture and allied activities accelerated in November 2020 as compared to a year ago. Credit growth to this sector has been increasing in the recent months with the growth in November 2020 being the highest since June 2019.

"The increase in credit to agriculture sector, which is a part of priority sector lending, is indicative of good performance of this sector," said the RBI report.
 

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As credit flow from banks improve with the acceleration in economic activities post the gradual lifting of the lockdown restrictions, credit growth has not been on the same lines across sectors.
RBI, Inflow, Credit, large industries
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2021-27-02
Tuesday, 02 March 2021
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