The banking sector lending to industry has picked up, led by disbursals to the micro, small and medium enterprises (MSME) sector. Bank credit to industry improved 12.6% year-on-year in September, compared to a muted 1.7% growth in the same month last year, data released by the Reserve Bank of India (RBI) showed.

Banks’ lending to micro and small businesses grew 27% YoY while that to medium enterprises increased 36% during the month. The higher credit growth for the MSME sector may have come due to the extension of the Emergency Credit Line Guarantee Scheme till March 31.

In comparison, credit to large businesses grew 8% YoY, compared to a contraction of 2.1% in the same month last year. The credit outstanding to industry stood at Rs 32.4 trillion as of September 23, according to the data.

Sector-wise, bank credit to infrastructure space grew 11%, led by the telecom, airports and roadways sectors, while lending to the ports sector declined 25%.

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With the revival in the economy, the pick-up in bank credit growth was led by term loans, Soumya Kanti Ghosh, group chief economic adviser of State Bank of India, said in a report. In addition, demand for working capital has also caught up, reflecting an optimistic outlook, he said.

The credit demand from the industry is arising from the need to purchase inputs or equipment, which companies are not in a position to postpone, Aditi Gupta, economist at Bank of Baroda, had said earlier. “For MSMEs, growth in credit has been led by government schemes to reduce stress in this sector, and hence will continue to ensure that credit demand from this sector does not weaken.”

Despite the increase in growth of loans to industry, personal loans continue to outperform, clocking a growth rate of 19.6% in September, boosted by its largest segments – housing and vehicle loans. Overall non-food bank credit grew 16.9% during the month under review, compared with 6.8% a year ago. Banks’ non-food credit outstanding stood at Rs 126 trillion.