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Another nail in the coffin: Commercial credit down 2.6 percentage points

The contraction has been across all the four segments of the commercial credit segment, including micro, small, medium, mid and large enterprises

Credit offtake outstrips deposit growth
Representative image

Amidst the deepening slowdown across the economy, commercial credit demand has contracted 2.6 percentage points to Rs 63.80 trillion in the June quarter over the three months to March period, accompanied by a steep deterioration in asset quality, says a report.

The contraction has been across all the four segments of the commercial credit segment, including micro, small, medium, mid and large enterprises, a joint survey report by the state-run Sidbi and Transunion Cibil said Wednesday.

What is more worrying for policymakers is the fact that the slowdown comes after a sustained quarter-on-quarter steady growth in commercial credit demand over the past few years on one hand and on the other the quantum of non- performing assets surged across all the four segments despite the lower base.

The depressing dataprints come in at a time when growth has slipped to a six-year low of 5 percent in the June quarter as the private sector is averse to invest in new capacities as they are already saddled with under-capacity utilisation due to falling consumer demand.

Overall commercial credit stood at Rs 63.80 trillion as of June 2019 as against Rs 65.52 trillion in March 2019 and is up 10.4 percent compared to Rs 57.81 trillion as of June 2018.

"The slowdown comes after a sustained quarter-on- quarter steady growth in commercial credit demand over the past few years," the agency said, adding the quantum of non- performing assets surged across all the four segments despite the lower base.

NPAs from the micro-enterprises increased to 8.7 percent from 8 per cent in March, those from MSMEs moved up to 10.6 per cent from 10 per cent, while those from mid-corporates rose to 17.5 per cent from 16.6 per cent and the delinquency levels from large corporate jumped to 18.1 per cent from 17.6 per cent, shows the report.

However, in what will come as a comfort for many stakeholders, auto loan delinquencies continue to be lowest among all segments despite the ongoing plunge in consumer demand, it said.

Accepting that NPAs may be a very lag indicator to understand sectoral risks, the report says based on early signs of risks assessed by Cibil, there has been a slight uptick in risks.

"Economic events impacting the auto MSMEs have made it tough for them to stay super prime for credit quality, but still have better overall credit health than some other industries," it says.

Entities in the troubled NBFCs space lost market share in commercial credit and now accounts for only 12.6 per cent, down from 13.7 percent in March 2019, the study said.

NBFCs' credit outstanding shows a 1 percentage point decline over the six month period to June as against 17.9 per cent growth last year and a faster rise in NPAs, as 5.9 per cent of loans having gone sour in June 2019 as against 4.4 per cent.