Bank credit grows 62%; loans to SMEs dismal

The gross bank credit has grown by a whopping 61.5% in 2018-19, purely on the back of credit flow to the large industries growing 10.5 times jump in the credit lines to the large industries.

The micro, small and medium enterprises (MSMEs), that have been reeling under the terrible stress after demonetisation, however, constituted a minuscule 0.6% of the total new credit by the Indian banks.

The total bank credit outstanding at the end of March 2019 stood at Rs 86.75 lakh crore, a jump of Rs 9.45 lakh crore (12.2%) over Rs 77.3 lakh crore at the end of 2017-18, according to data available with the Reserve Bank of India (RBI). During 2017-18, the total bank credit disbursed in the country stood at Rs 5.85 lakh crore.

During the year 2018-19, banks disbursed credit worth Rs 1.81 lakh crore to the large industries, 10.48 times more than mere Rs 17,300 crore disbursed during the last financial year. The large industries comprised 19.2% of the total new credit flow to the industries.
What is more appalling is the fact that power and telecom sector, the two sectors with the most number of stressed assets, contributed overwhelming 43.1% of the total credit to the industries. In 2018-19, the two sectors got Rs 80,372 crore in the form of fresh credit. In 2017-18, both sectors had seen deleveraging by Rs 6,280 crore.

However, the credit lines to the small scale industries, that have suffered the maximum brunt from the demonetisation drive of 2016, has remained dismal. The credit flow to the MSMEs during the year stood at paltry Rs 5,200 crore, a mere 0.6% of the total credit flow by the banks.

This is notwithstanding the measures that have been announced by the government and RBI to improve the flow of credit to this sector. It is pertinent to note that, during 2018, one of the major bone of contentions between the Reserve Bank and the government was the flow of credit to the MSMEs, which ultimately led to the ouster of the then RBI Governor Urjit Patel. The government was of the opinion that Patel's strict enforcement of regulations was proving to be a hindrance for the loan disbursement to MSMEs, which incumbent Bharatiya Janata Party (BJP) government considered as a key vote bank in the general elections.

"It is mostly on the back of lack of the activity in the MSMEs of late. There is not much of activity taking place in this sector as of now," according to Kavita Chacko of Care Ratings. Post demonetisation, micro, and small enterprises have suffered 35% job losses and 50% dip in revenue.