Industry most hit in bank credit growth slowdown

by Mahesh Vyas

Outstanding credit of scheduled commercial banks grew by 10.3 per cent in 2017-18. This growth was higher than the 8.2 per cent recorded in 2016-17. But, this does not imply any acceleration in credit offtake.

Year-on-year growth in bank credit has ranged between 8-11 per cent during the last four years. This is much lower than the 14-22 per cent annual growth seen in credit in the preceding four years or, the even higher growth rates seen earlier.

As a result of this slowdown in the growth of credit offtake, its share in GDP has declined in the last four years - from 53.4 per cent in 2013-14 to 51.6 per cent in 2017-18. The only time when the credit squeeze was more intense than this was in the early 1990s when India faced a payments crisis. While that was a deliberate credit squeeze dictated by the government in response to a crisis, the current shrinking is largely because of lack of demand. Besides, there is a greater reliance on alternate sources of finance today.

Outstanding non-food credit (which accounts for 99.5 per cent of total credit) grew by 10.5 per cent in 2017-18. Food credit declined.

Sectoral break-up of credit indicates that personal loans and loans for services sectors grew at a relatively faster clip. Personal loans grew by 17.8 per cent and loans for service industries grew by 13.8 per cent, in 2017-18. In contrast, loans for agriculture and allied activities grew by 3.8 per cent and loans for industry grew by a miniscule 0.7 per cent.

Industry still accounts for the largest share of outstanding credit. At the end of March 2018, it accounted for 35.1 per cent of the total outstanding commercial bank loans. However, its share in incremental credit was only 3.3 per cent during 2017-18.

Till 2013-14, industry received about Rs.3 trillion of additional bank credit a year. This halved to Rs.1.4 trillion in 2014-15 and then halved again to Rs.0.73 trillion in 2015-16. Then, in 2016-17 bank credit to industry turned net negative.

In 2017-18, there was a very mild, almost unconvincing recovery with an incremental loan of Rs.0.2 trillion.

The fall in lending to industry since 2014-15 essentially reflects a fall in lending for infrastructure.

Loans outstanding against infrastructure industries declined during 2017-18. This was the second consecutive year to witness a fall in loans outstanding against infrastructure industries. During 2017-18, loans outstanding against power, telecommunications and roads declined. Roads saw a fall of Rs.134 billion, power Rs.58 billion and telecommunication Rs.5 billion.

Given that the power sector has been facing low plant load factors and therefore very low new capacity creation, it makes sense that loans to this sector declines. However, the decline in loans to the roads sector is not in line with the enthusiasm seen in the ministry to build new roads.

Loans outstanding against the roads sector peaked at Rs.1,840 billion in June 2016. This has fallen almost steadily since then to Rs.1,665 billion by March 2018.

Roads received about Rs.200 billion of additional loans from banks, on an average, annually till 2013-14. In 2014-15, this dropped to Rs.107 billion and then to Rs.88 billion and then Rs.25 billion in 2015-16 and 2016-17. This was a very sharp fall. But, 2017-18 had worse in store. Outstanding loans to roads declined by Rs.134 billion. There were no incremental loans.

Outstanding loans to basic metals industries (essentially non-ferrous metals) declined by Rs.49 billion. This industry received around Rs.500 billion annually from banks till 2013-14.

Similarly, incremental loans to the cement industry dropped from Rs.75 billion to a shrinking of the book size in each of the the three years beginning 2015-16. Loans against cement declined by Rs.16.6 billion.

Petrochemicals and fertilisers also saw a fall in outstanding loans in 2017-18. Loans to sugar industry declined by Rs.37 billion. This was the third consecutive year of a fall in outstanding loans to the sugar and cement industries.

These falls are offset partly by an increase in exposure to industries such as transport vehicles. The bigger offset is by lending to consumers or to financial intermediaries.

Personal loans have been growing very well. It has received over Rs.2 trillion annually from banks since 2015-16. While the share of industry in incremental loans has fallen from 49 per cent in 2008-09 to a miniscule 3.3 per cent in 2017-18, that of personal loans has risen from 10 per cent to 49 per cent in the time period.

This is a structural shift in bank lending from production to consumption in response to the needs of the markets. Banks did lend to industry to raise the productive capacities. Now, it helps households raise consumption to absorb those capacities before new ones can be financed.

But, how can industrial production accelerate with falling credit availability? Industry requires finances for funding incremental capex and also for working capital. If there is no growth in capex, or finances then is industry running on empty? This raises questions about the strength of the recent uptick seen in the index of industrial production. Either bank credit to industry must increase or the IIP growth should moderate.

Unemployment Rate
Per cent
5.4 -0.0
Consumer Sentiments Index
Base September-December 2015
95.6 0.0
Consumer Expectations Index
Base September-December 2015
96.0 0.0
Current Economic Conditions Index
Base September-December 2015
95.0 0.0
Quarterly CapeEx Aggregates
(Rs.trillion) Sep 17 Dec 17 Mar 18 Jun 18
New projects 1.25 1.49 3.60 2.27
Completed projects 1.25 1.15 1.42 0.86
Stalled projects 0.69 0.88 3.41 0.30
Revived projects 0.34 0.22 0.26 0.22
Implementation stalled projects 0.78 0.71 1.92 0.03
Updated on: 16 Jul 2018 9:20AM
Quarterly Financials of Listed Companies
(% change) Sep 17 Dec 17 Mar 18 Jun 18
All listed Companies
 Income 7.9 12.0 10.4 18.1
 Expenses 9.0 13.0 17.1 21.2
 Net profit -18.0 -14.3 -80.7 7.3
 PAT margin (%) 5.5 4.8 1.2 19.3
 Count of Cos. 4,501 4,491 4,280 25
Non-financial Companies
 Income 8.2 13.3 11.9 18.2
 Expenses 8.1 12.3 12.8 22.2
 Net profit -6.0 13.2 -1.6 5.7
 PAT margin (%) 6.2 6.4 6.6 20.1
 Net fixed assets 9.2 11.9
 Current assets 2.9 8.2
 Current liabilities 11.0 10.6
 Borrowings 3.4 1.6
 Reserves & surplus 7.9 8.0
 Count of Cos. 3,466 3,469 3,317 19
Numbers are net of P&E
Updated on: 16 Jul 2018 10:15AM
Annual Financials of All Companies
(% change) FY15 FY16 FY17 FY18
All Companies
 Income 5.6 1.8 5.8 12.3
 Expenses 5.7 1.9 5.8 17.9
 Net profit 0.1 -9.3 26.2 -51.0
 PAT margin (%) 3.0 2.8 3.5 3.6
 Assets 9.5 10.2 7.3 14.1
 Net worth 8.5 11.3 7.0 11.0
 RONW (%) 5.8 4.9 5.9 4.8
 Count of Cos. 26,056 24,316 21,815 218
Non-financial Companies
 Income 4.8 1.0 5.7 9.8
 Expenses 5.0 0.3 5.9 9.3
 Net profit -8.5 20.4 21.4 11.9
 PAT margin (%) 2.0 2.5 3.0 13.4
 Net fixed assets 13.3 17.4 6.5 21.2
 Net worth 7.0 12.0 5.7 5.3
 RONW (%) 4.6 5.2 6.1 17.7
 Debt / Equity (times) 1.1 1.1 1.0 0.2
 Interest cover (times) 1.9 1.9 2.1 16.0
 Net working capital cycle (days) 66 65 62 -12
 Count of Cos. 21,269 20,387 18,246 150
Numbers are net of P&E
Updated on: 04 Jul 2018 4:50PM