 "Bank credit growth to priority sector slows")
The credit deployment by banks to the priority sector grew at a slow pace in November 2014 compared to the corresponding month in the previous year, Reserve Bank of India (RBI) data showed. Credit to the priority sector increased only 10.4 per cent in November 2014, compared with a growth of 24.3 per cent in November 2013. From March 21 to November 28, 2014, lending to the priority sector grew only 0.8 per cent compared with 11.3 per cent in the year-ago period.
Banks are mandated to lend 40 per cent of their funds to the priority sector, which includes agriculture, among others.
Vibha Batra, senior vice-president and co-head (financial sector rating) at ICRA, explains that regulatory changes, coupled with a slowdown in the micro and small enterprises, have led to a slowing credit growth in the priority sector.
In May 2014, RBI had said investments made under RIDF as part of indirect agriculture lending would be counted under banks' PSL targets.
Banks are mandated to lend 40 per cent of their funds to the priority sector, which includes agriculture, micro and small enterprises, education and housing, among others.
Analysts also believe that the slowdown in the small and medium enterprise segment has also pulled down the growth in credit deployment to PSL. During March-November 2014, credit to micro and small enterprises grew only by 0.7 per cent, compared to 14.2 per cent in the same period a year ago.
"Banks have also been a little risk-averse and have tried to avoid lending to segments such as small enterprise in order to avoid bad loans and this is another reason that has pulled credit to these segments down," added Batra. Banks' non-food bank credit increased 11.0 per cent in November 2014 compared to an increase of 14.7 per cent in the year-ago period. Credit to industry, too, increased by 7.3 per cent compared with 13.7 per cent rise in November 2013.
"Deceleration in credit growth to industry was observed in all major sub-sectors, barring construction, beverages & tobacco, and mining & quarrying," RBI said in a notification.
Credit to the services sector also increased at a slower pace of 9.9 per cent, compared with the increase of 18.1 per cent in November 2013.
Banks are mandated to lend 40 per cent of their funds to the priority sector, which includes agriculture, among others.
Vibha Batra, senior vice-president and co-head (financial sector rating) at ICRA, explains that regulatory changes, coupled with a slowdown in the micro and small enterprises, have led to a slowing credit growth in the priority sector.
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"Regulatory changes allowing banks to invest in Rural Infrastructure Development Fund (RIDF) to meet the PSL (priority-sector lending) norms would have had led to a higher quantum of funds being deployed in RIDF instead of lending directly to the priority sector," Batra said.
In May 2014, RBI had said investments made under RIDF as part of indirect agriculture lending would be counted under banks' PSL targets.
Banks are mandated to lend 40 per cent of their funds to the priority sector, which includes agriculture, micro and small enterprises, education and housing, among others.
Analysts also believe that the slowdown in the small and medium enterprise segment has also pulled down the growth in credit deployment to PSL. During March-November 2014, credit to micro and small enterprises grew only by 0.7 per cent, compared to 14.2 per cent in the same period a year ago.
"Banks have also been a little risk-averse and have tried to avoid lending to segments such as small enterprise in order to avoid bad loans and this is another reason that has pulled credit to these segments down," added Batra. Banks' non-food bank credit increased 11.0 per cent in November 2014 compared to an increase of 14.7 per cent in the year-ago period. Credit to industry, too, increased by 7.3 per cent compared with 13.7 per cent rise in November 2013.
"Deceleration in credit growth to industry was observed in all major sub-sectors, barring construction, beverages & tobacco, and mining & quarrying," RBI said in a notification.
Credit to the services sector also increased at a slower pace of 9.9 per cent, compared with the increase of 18.1 per cent in November 2013.