Bank credit to highly debt-ridden sectors like power, telecom and mining has been on a downhill, a trend that is likely to continue unless more steps are taken to weed out bad loans, industry body Assocham said today.
Analysing the Reserve Bank data, a paper prepared by the chamber noted that the mining sector, which has been battling slowdown in demand and pricing power, saw maximum de-growth in deployment of bank credit in 2016-17 by 11.5 per cent at Rs 345 billion in March 2017, from Rs 390 billion in the same month of the previous year.
The government earlier this month empowered the RBI to ask banks to initiate insolvency proceedings to recover bad loans amounting to over Rs 6 lakh crore in the case of state- owned lenders alone and promised more measures to resolve the NPA (non-performing assets) crisis.
"All the buzz around coal block auctions is missing, with subdued demand for coal, as also bleak outlook for thermal power plants which are themselves struggling after adding capacities based on assumptions of pricing and demand that have turned out to be far from the real situation at the moment," the Assocham paper stated.
Like mining and quarrying, including coal, bank credit to the power sector also contracted 9.4 per cent to Rs 5,256 billion as on March 2017, from Rs 5,799 billion a year ago, the paper said.
The power sector is battling issues like high debt, low prices of merchandise power, unwillingness of the state- owned distribution firms to revise tariffs and potential competition from solar energy.
Telecom is no exception. Bank credit to the country's telecom sector during 2016-17 came down by 6.8 per cent to Rs 851 billion, from Rs 913 billion, the paper noted.
"Aggressive bidding for spectrum and intense competition for tariffs have brought the telecom sector as well to such a pass that bank credit to telcos is decreasing. It has become a game of deep pockets, but those pockets cannot be filled by borrowed money always," Assocham Secretary General D S Rawat said.
However, iron and steel saw a positive growth, though by a modest 2.6 per cent to Rs 3,195 billion, from Rs 3,155 billion, the paper pointed out.
"The (iron and steel) sector seems to be witnessing a recovery, helped by certain policy measures like restrictive import from China," it said.
The paper concluded that it would be some way off before the situation in the highly leveraged sectors turns healthy. However, it appreciated the efforts from banks and borrowers towards a solution in this regard.
(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)