Bank credit growth picks up during second Covid-19 wave

According to RBI data, housing loans, including priority sector housing, grew by 9.7% year-on-year and 0.4% in this financial year till June

Loan growth of commercial banks has shown incipient signs of revival in June, after lacklustre April and May with retail credit sustaining a double-digit growth, Reserve Bank of India’s data on sectoral deployment of bank credit showed. However, overall loan growth remained sluggish, which grew by 6.1 per cent year-on-year as of July 30, even as the second fortnight of July saw loans swelling by about Rs 32,000 crore.

What is heartening is that the RBI data on sectoral deployment shows that the month-on-month declining trajectory of credit growth in April and May – the months when the second wave was at its peak – was arrested, mainly supported by retail loans.

“Retail credit, on the low base of last year, sustained 12 per cent YoY growth,” ICICI Securities said in a note.

“Q1 is seasonally slow for retail credit while covid-led disruption further disrupted disbursements. With the relaxation of restrictions and gradual opening up, June 2021 regained some momentum. Retail credit was flat month-on-month, after registering a decline in April/May 2021,” the note said.

Auto and gold loan

Vehicle loans sustained an 11 per cent year-on-year growth in June even though there was a decline on, month-on-month basis. Bankers expect auto loan sales to pick up in the upcoming festive season and sustain growth in the remaining part of the current financial year.

“Personal [retail] loans registered an accelerated growth of 11.9 per cent in June 2021 as compared to 10.4 per cent a year ago, primarily due to accelerated growth in ‘loans against gold jewellery’ and ‘vehicle loans’,” RBI said while releasing the loan data on the sectoral deployment.

Loans against jewellery grew 81.6 per cent on a year-on-year basis, the data showed.

Home loans, another segment within retail, grew by close to 10 per cent year-on-year, on the back of the healthy sale of mortgages – both premium and affordable.

According to RBI data, housing loans, including priority sector housing, grew by 9.7 per cent year-on-year and 0.4 per cent in this financial year till June.

There was a growth in home loans on a month-on-month basis too. The one segment among retail that is still on a contraction is credit card outstanding.

With consumption demand yet to pick up, apart from the conservative approach adopted by banks, credit card outstandings contracted by 11.8 per cent in the financial year so far and 1.6 per cent sequentially over May. RBI’s recent ban on Mastercard will slow down card issuances (particularly by banks that had a tie-up with Mastercard only), which will also impact the growth in credit card spending.

Muted loan demand by industry

Bank loans to the industry continue to be the weak link in the overall credit off-take in the country that contracted by 0.3 per cent in June 2021 from 2.2 per cent growth in June 2020.

Size-wise, credit to medium industries registered a robust growth of 54.6 per cent in June 2021 as compared to a contraction of 9 per cent a year ago. Credit growth to micro and small scale industries accelerated to 6.4 per cent in June 2021 compared to a contraction of 2.9 per cent a year ago, while credit to large scale industries contracted by 3.4 per cent in June 2021 compared to a growth of 3.6 per cent a year ago.

Among sub-sectors within the industry, credit to food processing, gems & jewellery, glass & glassware, leather & leather products, mining & quarrying, paper & paper products, rubber, plastic & plastic products and textiles registered growth in June 2021 as compared to the corresponding month of the previous year.

However, credit growth to engineering, beverages & tobacco, metal & metal products, cement & cement products, chemicals & chemical products, construction, infrastructure, petroleum, coal products & nuclear fuels and vehicles, vehicle parts & transport equipment decelerated or contracted, the data shows.

Credit growth to the services sector decelerated to 2.9 per cent in June 2021 from 10.7 per cent in June 2020. It was mainly due to contraction/deceleration in credit growth to commercial real estate, NBFCs, tourism, hotels, and restaurants. Credit to trade segment, however, continued to perform well, registering 11.1 per cent growth in June 2021 compared to 8.1 per cent a year ago.

Pick up in loans

The latest bank lending survey of RBI shows growing optimism on loan demand, alongside expectations of easier loan supply conditions in the coming quarters.

“This combination bodes well for credit growth, which has fluctuated in the ~5.5-6.5 per cent y-o-y range thus far in 2021,” research analysts at Nomura said in a report.

After the drop in loan demand in the April-June quarter of 2021, due to the second wave, banks expect loan demand to recover in the current quarter and rise at a much faster rate in the next two, above the levels that prevailed before the pandemic, the survey indicated.

On the supply-side, too, banks expect to ease the terms and conditions of loans in coming quarters, on both price and non-price aspects, and across all sectors, especially for retail and services loans.

While retail loans are expected to continue a healthy growth trend during the next few quarters, it is to be seen if loan demand by the industrial sector improves. There is some optimism on that aspect since India Inc’ has strengthened its balance sheet and is now in a better position to leverage.

“We believe India Inc is now better positioned and confident to anvil on the path of re-leveraging. Indian financiers too have saddled themselves with ample liquidity/capital buffer to tap the emerging opportunity,” the ICICI Securities report said.

(The writer is a Mumbai-based journalist)