Credit to industry by scheduled commercial banks (SCBs) has fallen quite sharply between November 2022 to January 2023. This is in sharp contrast to the strong expansion in credit offtake by industry in the preceding four months. Expectations that the earlier increase in credit offtake by industry was a sign of a revival of the capex cycle in India seem to have been a case of misplaced optimism.

In November, outstanding credit to industry had increased by a mere Rs.39 billion. In December 2022 and in January 2023, disbursals declined by around Rs.29 billion, each. Decline in outstanding credit implies that repayments of past loans exceeded fresh borrowings. In comparison, increase in outstanding credit to industry had averaged Rs.306 billion per month during July to October 2022. During September and October, average monthly credit offtake by industry had surged by Rs.478 billion. The fall in outstanding credit to industry in recent months is in stark contrast to these robust increases just about 3-4 months ago.

One of the classifications of the data provided by the Reserve Bank of India on credit by industry is large, medium and micro & small on the basis of size of industry. This classification shows that the recent slide in credit offtake, post October 2022 was witnessed entirely in large industries. Credit to MSMEs on the contrary, increased in this period.

Credit offtake by large industries declined by Rs.37.8 billion in November 2022. The decline worsened to Rs.388.6 billion in December 2022. Credit disbursals declined in January 2023, as well, but the fall was marginal. In contrast, average monthly credit to large industries had increased during July to October, with the last two months recording accelerated expansion in credit. Credit had increased by an average of Rs.311 billion in the four months ending October. September and October had recorded an average increase of Rs.526.4 billion.

The trend was exactly the opposite in case of MSMEs. Average monthly credit disbursals increased by Rs.137 billion during November 2022 to January 2023. But during July to October 2022, average disbursals had declined by Rs.5.1 billion per month. This was mainly on account of a substantial decline in credit of Rs.250 billion in October.

Credit to industry is also classified in terms of various industries. Average monthly credit offtake from November onwards has declined for some major industries. Credit offtake by industries, which can be considered large, such as chemicals & chemical products industry, petroleum, coal products & nuclear fuels, power, telecommunication and other infrastructure industries declined during November 2022 to January 2023.

Average monthly credit to power industry recorded a decline of Rs.74.5 billion during November 2022 to January 2023. Similarly, average monthly credit to telecommunications industry declined by Rs.69.7 billion. Besides this, credit to chemicals & chemicals products industry declined by Rs.24.7 billion whereas that to petroleum, coal products & nuclear fuels industry declined by Rs.25.6 billion. Credit to other infrastructure industries declined by Rs.46.6 billion. Out of these industries, barring telecommunications, average monthly bank credit to the remaining four industries had increased during July to October.

But the trend witnessed in credit offtake by industries such as textiles, iron & steel, other metals industry (other than iron & steel) was exactly opposite. Average monthly credit to these industries increased during November 2022 to January 2023.

Average monthly credit to food processing industry increased by Rs.53.8 billion during November 2022 to January 2023. During July to October, it had declined by Rs.45 billion. Similar was the case for textiles industry. Average monthly credit disbursals increased by Rs.22 billion during November 2022 to January 2023. It had declined by Rs.13 billion during July to October. Credit to other metals & metal products industry (other than iron & steel) increased by Rs.21.7 per month on an average between November and January against the average monthly decline of Rs.12.6 billion during July to October.

Credit to iron & steel industry has seen a persistent increase in credit offtake. Average monthly credit increased by Rs.57.5 billion during July to October. During November 2022 to January 2023 as well, credit increased by by Rs.65.4 billion on an average per month.

The increases in credit by industry such as those by textiles, food processing, metals, etc. are smaller than the fall in outstanding credit by industries such as power and telecom. As a result, the overall credit outstanding with large industries has declined. This fall in credit offtake by large industries implies that the earlier increase in credit was not a sign of a revival of the capex cycle in India. It was more likely the result of an increase in the working capital requirement of industry because of the sharp increase in commodity prices.