Credit growth is at abysmal rates
in India today. At the end of January, credit growth slowed down to a low of
5.1% yoy, more than halving from the growth during the corresponding period of
the previous year. From the looks of it, the number suggests an overall drag on
loans offtake by economic agents. This is not far from the truth: There has
been a secular decline in credit growth across various categories –
agriculture, industry, services and personal loans.
Credit ex-industry relatively strong
What is however, far from the
truth is the extent of decline. Overall credit numbers are disproportionately
dragged down on account of a shrinkage in credit offtake by 5.1% in the
industrial sector, even as it retains 8% growth rates for agriculture and
services. Personal loans, in fact, is still witnessing double digit growth.
If we exclude the impact of
industry on credit, the scenario looks far more robust. Credit ex-industry has
been growing faster than total credit since mid-FY14, and the gap between the
two has only increased overtime. The gap increased to 6.7 percentage points in
April 2016, and then in November 2016 and is currently at a very close 6.4 percentage
points. Therefore, it is unsurprising when the credit ex-industry number turns
up at a double digit 11.5%, more than double the growth in total credit.
Gap between growth in credit and credit ex-industry is strengthening
This, in no way means that the
steady decline in credit ex-industry is not something to worry about –
especially in the face of still persistent NPAs, particularly in the public
sector banks – only that, there needs to be a sectoral targeting to resolving
the credit problem. In this case, the problem area is industry. Numbers of
industrial production don’t give much room for hope in the near future either.
Industry has been almost flat over the April-January FY17 period. In fact, even
if we were to anticipate a pickup in industry demand in the near future, it is
unlikely that loan offtake will improve in a hurry. Capacity utilisation among
manufacturing companies is around the 70% mark, and unless the companies are
assured of continued increase in demand levels, we are unlikely to see this
piece of credit growth resolve itself organically.
In the next post we will drill
down to the various segments of industry that are plagued with poor credit
offtake.
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