Moderation in retail loans crimps credit growth

The tightening of bank lending norms to individuals seems to be the main drivers for a decline in incremental credit flow.

According to the latest data released by the Reserve Bank of India On Monday, personal loans, including home loans, advances against fixed deposits, credit card dues, education loans and consumer durables finance, increased by 5.5 per cent, or by Rs 29,266 crore, during the year up to May 22, 2009. On a year-on-year basis, up to May 23, 2008, the increase in this segment was 16 per cent, or Rs 72,777 crore. So, on the basis of incremental flow, the difference was of the order of Rs 43,511 crore.

Similarly, gross non-food bank credit went up by 17.6 per cent, or by Rs 3,83,483 crore, during the year up to May 22. In the same period last year, the year-on-year increase was 24.3 per cent, or 4,23,189 crore. On an incremental flow basis, the difference was Rs 39,706 crore.

A decline was also seen in case of loan growth to the services sector, but it was far less. The growth rate declined to 20.5 per cent during the year up to May 22, as against 31.3 per cent a year ago, driven mainly by lower rise in lending to transport operators and for trade finance. Despite RBI’s repeated warning notes, credit flow to commercial real estate has increased on a year-on-year basis to 52 per cent, as against 37.7 per cent up to May 23, 2008.

Now, the good news. Lending to industry with incremental flow remained largely unchanged at Rs 181,848 crore during the year up to May 22, as against Rs 182,857 crore a year ago, though the growth rate moderated.

Along with agriculture, industry was the other segment which increased its share in the overall share of gross bank credit available up to May 22. Its share rose to 47.4 per cent of incremental non-food credit (y-o-y) compared with 43.2 per cent a year ago. The expansion was led by infrastructure (35.1 per cent), iron & steel (29.9 per cent), engineering (24.2 per cent) and construction (44.7 per cent).

Similarly, the agricultural sector absorbed 16.9 per cent of the incremental non-food bank credit as compared to 10.1 per cent a year ago. The share of personal loans fell from over 17 per cent of the incremental non-food credit to 7.6 per as on May 22.