There is no denying the fact that credit growth continues to decline. In the current fiscal, there has been an incremental credit de-growth of Rs 1.5 lakh crore. However, interspersing RBI’s sectoral deployment of bank credit data with that of sectors filtered from listed corporate loan funds data, we find that (1) credit flow in certain sectors to have flown away from listed sectors (based on listed companies data) and (2) traditional lending source has also undergone a structural change. Here is our understanding of how the credit numbers tell the story. Going by the sectoral deployment of bank credit, non-food credit grew by 28.3% or a CAGR of 9% during last three years, i.e. FY14-17. Within non-food credit, loans to personal segment as well as agriculture and allied activities put together grew by around 56% in the same period, yielding a CAGR of 16%. Barring the above two segments, the other non-food credit grew at a snail’s pace at CAGR of 5.2%. Clearly, credit to industry barely grew during the last three years! There are some exceptions, however. In services, sectors such as trade, NBFC and professional service reported healthy credit growth. To have a better understanding of the credit growth across sectors, we next mapped the movements in credit growth across industries:
Industries that witnessed a decline in loan funds despite increase in RBI credit for the three-year period ended FY17. The results were a revelation. Industries that witnessed a more than proportionate increase in loan funds corresponding to bank credit are sectors like cement, pharma and auto ancillary, etc, (table 1). These group of industries appear to increasingly resort to raising debt resources outside traditional banking channels, possibly through overseas funds, ECBs, institutional borrowing, mutual funds, etc. We further attempted to look at the rating movement of the above mentioned sectors. We found that the upgrade to downgrade (U/D) ratio is above 1 for all the above sectors (table 1).
Moreover, sectors such as pharma and automobiles where maximum loan funds growth is observed from other than banking system have better U/D ratio of more than 2x. These clearly indicate that such sectors, because of a better credit profile, are able to exploit the non-banking sources also better. On the other hand, industries that are witnessing a decline in loan funds corresponding to bank credit are sectors such as trading, fertilisers, rubber, plastic and their products (table 2). These group of industries are possibly witnessing a credit flow towards non-listed/unrated micro, small & medium enterprise (MSME) entities.
Let us now come back to table 2. For example, in respect of sub-segment trade through FY14-17, we observe that while loan funds outstanding of listed entities declined, RBI credit deployment numbers depict growth. From this, we possibly infer that credit deployment has moved away from listed corporates to unlisted entities/unorganised, possibly, retail trade. Similarly, in construction we infer the same, as can be seen from table 2. There may be other sectors too, but for want of clarification on classification of sector by RBI and our listed database, this exercise may only be read as a fleeting review.
For example, we note that while the automobile sector reported increase in loan funds from listed entities database, auto ancillaries reported decline in loan funds during FY17 over FY14. RBI classifies the same as Vehicles, Vehicle Parts & Transport Equipment. Combining automobiles and auto ancillaries from the listed database and going by table 1 stated above, it appears that the extent of increase in loan funds is higher than as reported by RBI (also includes transport equipment), making us believe that incremental credit to these sectors were drawn beyond traditional banking sources.
In our analysis, we have not considered sectors where traditional lenders, say, may have converted their debt into equity. Where sectors reporting decline in loan funds in listed corporates may contradict with increase exhibited in RBI sectoral credit deployment, we are compelled to believe that credit has flown to MSME unlisted entities. Overall, this augurs well for lenders who appear to be derisking and reworking their model for a better tomorrow. However, sectors such as credit to automobiles and auto ancillaries may require some rethinking by traditional lending channels.
(Sunil Sharma contributed to the article.)