Industrial bank credit growth still struggling

HYDERABAD: While data is increasingly showing signs of economic recovery, one key financial metric is refusing to budge. Growth in industrial bank credit remained nil as of September, and needs to cover much ground for any meaningful and sustainable recovery to commence. 

This muted growth was a first during the current fiscal as bank credit even during the lockdown period and immediately thereafter stood at a relatively respectable 1-2%. While credit growth to industry as of May was 1.7%, in the subsequent months of June, July and August, it stood at 2.2%, 0.8% and 0.5% respectively.   

It could have slipped into negative territory, but for the government-backed Emergency Credit Line Guarantee Scheme (ECLGS) to MSMEs (announced as part of fiscal stimulus), without which, overall credit growth to the industry would have seen a de-growth. 

For instance, credit growth to both small and large industries slipped in and out the negative zone, but the overall incremental bank credit growth was perched up by disbursements under ECLGS.

Banks have sanctioned Rs 2.03 lakh crore of which Rs 1.48 lakh crore has been disbursed till October. This is higher than gross bank credit (food and non-food) growth of Rs 1.2 lakh crore in absolute terms during May and October.

Additionally, ECLGS has been announced for stressed sectors and further extended till March, 2021. It means, disbursements to the industry will likely maintain some momentum. 

Within industry, major sectors such as sugar, chemicals and electronics among others witnessed significant declines. In all, of the total 32 sectors and sub-sectors, 14 saw a de-growth. Only a faster and steady growth in industrial credit growth would imply a step towards recovery, but such a prospect is unclear as banks are being selective with their credit portfolios due to asset quality concerns.

As on November 6, even though the liquidity surplus in the banking system stood at nearly Rs 5 lakh crore, banks are reluctant to lend. The surplus liquidity is also due to deposits growth outpacing credit growth persistently and investments in government securities.   

Meanwhile, the overall credit growth in the banking sector increased marginally compared to last fortnight, indicating that consumers had started purchasing with the arrival of festive season, according to Care Ratings.