Finance ministry flags low PSB credit to labour-intensive sectors

The official further added that the advances to agriculture and retail sectors touched 92 per cent and 98 per cent respectively for below the Rs. 10 crore loans category

The finance ministry has raised concerns with public-sector banks (PSBs) on the low credit growth to labour-intensive sectors during the last five years up to FY25.

 

In this period, the above ₹100 crore segment saw credit to the finance category surge by 17.7 per cent. In contrast, their credit to sectors, such as manufacturing and mining, rose only 1.3 per cent, according to a senior government official.

 

This comes at a time when labour-intensive export-oriented sectors face job losses due to the punitive 50 per cent tariff by the US administration.

 

“Credit growth to the manufacturing and mining sectors is worrying. PSBs need to pull themselves up in these sectors,” said the official.

 

The official further said that the advances to agriculture and retail sectors touched 92 per cent and 98 per cent, respectively, in the below ₹10-crore loans category.

 

“The growth in advances in agriculture and retail have outpaced credit growth in other segments, showing credit growth is driven by low-ticket advances only. It also underlines risk averseness of PSBs in high-value advances,” added the official.

 

The source further highlighted that 87 per cent of the total increase in credit in the above ₹100 crore segment was from "finance, trade, professional services, electricity and construction." This shows limited support of high-value credit to core engineering, mining and manufacturing.

 

Credit growth by PSBs in loans up to ₹10 crore recorded a compound annual growth rate  (CAGR)  of 13.1 per cent over the five-year period.

 

In the mid-sized loan category — above ₹10 crore and up to ₹100 crore — growth was nearly stagnant at just 0.1 per cent CAGR. In contrast, large-ticket loans above ₹100 crore expanded at a CAGR of 8.9 per cent.

 

Private sector banks, on the other hand, showed much stronger momentum. Loans up to ₹10 crore grew at a robust 17.9 per cent CAGR, while advances in the ₹10–100 crore range clocked 14.7 per cent CAGR.

 

Large loans above ₹100 crore for private banks rose more moderately, at a CAGR of 9.3 per cent.

 

The source also pointed out that PSB loss of share in savings accounts (SA) was comparatively less steep. It was partially due to access to central nodal account (CNA) and state nodal account (SNA) deposits in the form of savings.

 

“With the implementation of ‘Just In Time’ (JIT) fund release, the loss is expected to be swifter,” said the official.

 

“PSBs now have a lower market share in current account (CA) deposits than private banks. This has also translated into a smaller share in micro, small and medium enterprises (MSMEs) credit growth, thereafter, in fee-based income from the non-fund-based business and foreign exchange,” the source added.