Bank credit's double-digit growth in April brings cheer, with caution

Gross bank credit (non-food) grew 10.7 per cent in April 2018, registering the third double-digit growth since December 2014. Financial Services Secretary Rajeev Kumar attributed this success to the bank recapitalistion exercise undertaken last year. However, the cheer has arrived with some caution, said experts.

Agriculture, the biggest informal employer in India, housing sector, which has an impact on sectors that energise the economy, and the growth-boosting exports sector are witnessing the slowest bank credit growth, data released by the Reserve Bank of India suggests.

Farm loan waivers, non-performing loans in the affordable housing segment, and the Nirav Modi scam are the reasons for slow credit growth, experts said.

Credit to agriculture grew at 3.8 per cent in March 2018, the lowest growth in the last decade, and it improved marginally to 5.9 per cent in April. Credit to priority sector housing grew 1.2 per cent in April, the second slowest growth in a decade. Priority sector export credit from foreign banks contracted 53 per cent in April, again the worst the decade has seen.

However, it must be noted that though growth in bank credit to various sectors might be slowing, credit growth through non-banking channels is rising, offsetting the reduction in bank credit growth, said economists.

“Farm loan waivers, though necessary, create strong disincentives for banks to lend. In addition, the depressed farm prices are reducing the farmers’ ability to repay loans, which has subdued farm credit growth,” a senior government official and economist told Business Standard.

Farm credit growth could have been 11 per cent, if adjusted for the roughly Rs500 billion disbursed as loan waivers by eight states in 2017-18, Anil Gupta, vice-president, sector head-financial sector ratings, Icra, said in an email response. 

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Housing sector woes are mostly emanating from the rising non-performing loans in the affordable housing segment. “After careful analysis of the housing loans data, it has been observed that the level of non-performing assets for the ticket size of up to Rs200,000 has been high and is rising briskly,” the Reserve Bank of India (RBI) noted in its latest statement on developmental and regulatory policies released on June 6.

The RBI study quoting the national housing bank data had showed earlier this year that the non-performing loans in the combined exposure of public sector banks and housing finance corporations to low-cost housing has touched 10.4 per cent in 2016-17.
 

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Analysts from the real estate market mirror the RBI tone, while also suggesting that demonetisation and procedural requirements rattled the sector.

The impact of demonetisation was massive on the unorganised sector wherein wages were primarily paid through cash. In addition, the strata of population that avail of loans under the priority sector has limited proof of income,” Anuj Puri, chairman, ANAROCK Property Consultants, told Business Standard in an email response.

Though priority sector export credit has contracted the fastest in a decade, it must be noted that its quantum is only about 10 per cent of scheduled commercial bank credit to exporters, an insufficient sample to represent the entire exports sector. But the worries to the exporters are real, said Ganesh Kumar Gupta, president of the Federation of Indian Export Organisations.