Statsguru: Bank lending in the slow lane amid Covid-19 pandemic

The half-yearly Financial Stability Report released by the Reserve Bank of India (RBI) last week shows how bank lending evolved during the tumultuous year gone by. This assumes importance especially when credit growth is slowing down in the commercial banking universe.

Chart 1 shows the quarter-on-quarter growth in credit by public and private banks to two complementary sets of borrowers: Public sector undertakings (PSUs), and non-PSUs, or private companies. In a period of slowing credit growth, only PSUs have sequentially borrowed more, and that too, only from private banks. The report highlighted the dissonance between the resilience and the falling market capitalisation of central PSUs in the stock market. Loan flow from private banks to private companies, in fact, is sequentially worsening.



Financial services and real estate together are slated to be bright spots this year, with just 0.8 per cent contraction in gross value added, official data shows. But these very sectors witnessed a slowdown in bank credit growth in 2020, reveals chart 2. Trade has been the worst hit sector, but has shown the fastest pickup in credit.

 

Chart 3 shows that businesses see uneven hope in the sectors severely affected by Covid-19. RBI’s systemic risk survey showed that credit to the retail and auto sector may improve “moderately”. Only construction, real estate and aviation were put in the “good” basket by respondents, but to a very negligible extent. Uncertainty about the duration of the pandemic, despite the vaccine hope, is still weighing heavily on these areas.



One way to see what may transpire in the coming year is the loan enquiries that banks receive. Number of enquiries for consumer loans are considerably lower than a year ago in private banks, non-banking and housing finance companies. Enquiries have risen in PSBs, but they are nowhere near pre-Covid levels, shows chart 4. The report further noted that the credit-score threshold for approvals has moved up, suggesting fewer approvals.

 

Chart 5 plots the same for micro, small and medium enterprises, or MSMEs, a sector that was the prime beneficiary of the government's post-Covid stimulus package. Enquiries for MSME loans, which were improving about six months into the pandemic, declined towards the end of 2020.

 

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines | Source: National Statistical Office; compiled by BS Research Bureau