How has the pickup in the economy impacted the demand for bank credit among the different sectors of the economy? The data released by RBI at the end of last week provides very interesting insights into the trends. The overall numbers show a steep increase in demand, with the year-on-year figures indicating that credit growth surged to 22.3% in the year up to November 10, 2010. This was more than double the 9.9% growth in the corresponding period of the previous year. So, the acceleration of growth rates has clearly pushed up demand for credit, which is now growing at double the pace.
But the big question is, has the pickup in credit needs been uniform or is it basically from a few sectors like telecom, where the high investments needs of the 3G sector have boosted demand for credit? A detailed investigation of the numbers shows that the pickup in demand for credit is much more extensive.
When one looks at the year-on-year numbers across six major categories where the demand for credit originated, it is found that the highest pickup was in food credit, which is basically credit used to finance the buffer stocks of grain in the government godowns, for supply to the public distribution system and other welfare schemes. The supply of food credit has grown by a substantial 38.4%, as compared to the 16.6% fall in the corresponding period of the previous year, which means a substantial increase in food stocks obviously purchased at higher minimum support prices.
The next important area that showed a demand for commercial bank credit was industry, where flows picked up at a fast 27%, which is almost double the 14.2% increase in the previous year. Though the supply of credit to individual sectors of industry is still not available, the trends show that the maximum gains have been in the large industry, where the flows rose the highest at 30.9%, double the pickup in the previous year. The trends were also positive in the medium-scale industry, where the credit picked up from 9.5% last year to a more substantial 16.4% in the current year.
The only major casualty was the micro and small industrial units, where the credit pickup decelerated to 16.9% in the current year from 19% in the previous year. However, in sharp contrast, the credit flows to micro and small units in the services sector shot up by 27.1%, up from the 19.6% growth in the corresponding period last year. The slowdown in the flow of credit to micro and small industrial units in the priority sector was not an isolated event as credit flows also decelerated in other priority areas like agriculture, priority sector housing and education. While growth of agriculture credit slowed down marginally to 20%, that to housing went down to 9% and that to education slowed to 21.9%. The only priority sector segments where credit flows picked up substantially were micro credit (51.4%), export credit (35.3%) and credit to weaker sections (29.8%). This pickup pushed growth of overall priority sector lending from 15.4% last year to a more respectable 21% this year, which is only marginally lower than the overall growth of credit.
Credit growth to the services also shot up sharply to 23.2% in the current fiscal year, which was almost three time faster than the increase in the previous year. And the most impressive was the pickup in consumer loans, where the flows increased from a meagre 0.8% last year to a much more substantial 11.9%, primarily fuelled by the increase in funds flows to borrowings against equities (25.9%) and fixed deposits (19.6%), education (23.2%) and vehicle loans (18.7%).