North Block turns lens on retail credit growth

The phenomenal growth in retail credit is on the radar of the finance ministry, while the Reserve Bank of India feels that the overall growth in non-food credit is not sustainable.

In fiscal year 2005-06, bank credit has grown by Rs 3,96,045 crore or 36 per cent on top of a Rs 3,11,425-crore credit growth (37 per cent) in the previous year.

Bankers said the overall credit flow into the retail sector was over 50 per cent of the total credit pie, with some of the banks recording as much as 70 per cent growth in retail credit.

"The credit growth per se is not a problem but one needs to see the distribution of credit in various segments. Right now, too much of credit is being flown into the retail segment. Banks need to lend to agriculture, small and medium enterprises (SMEs) and manufacturing companies," said a North Block source.

The ministry has hinted to banks that they should take a re-look at their credit portfolio and lend more to these segments.

"Even though as a percentage of gross domestic product, banks' retail credit in India is very small compared with other countries, the sudden growth in certain pockets can create a bubble," said a banking sector analyst.

Home loans and car loans are the two major components of retail credit. Some of the banks have recorded only marginal growth or even a dip in their corporate loan portfolio, while their retail loan portfolio has grown between 40 per cent and 70 per cent.