Overall credit growth picked up in H2FY21. Housing loan growth, however, slowed down, affecting the pace of retail growth
The momentum in credit growth picked up in October 2020 and has registered positive growth on a financial year basis since November.
Agri credit growth hit a nearly four-year high of 10.2% year on year (YoY) in February 2021, the Reserve Bank of India (RBI) said in its monetary policy report for April 2021. This has been the fastest credit growth in the segment since February 2017. Overall credit growth picked up in H2FY21, led by medium industries and the agri-segment. However, housing loan growth slowed down and affected the pace of retail growth.
The momentum in credit growth picked up in October 2020 and has registered positive growth on a financial year basis since November. Non-food credit by banks rose 6.4% YoY as on March 12, 2021, as compared with 6.1% a year ago. Credit growth accelerated across all bank groups, especially public sector banks (PSBs). Of the incremental credit extended by SCBs on a y-o-y basis, 53.8% was provided by PSBs, 45.7% by private sector banks and 0.5% by foreign banks.
Among major sectors, credit growth to the services sector remained strong. Credit to the industrial sector, however, contracted marginally by 0.2%, mainly due to a decline in credit to large industries, which account for more than 80% of credit to the industrial sector. On the positive side, credit to medium industries registered 21% robust growth, reflecting the measures taken by the government and the RBI for enhancing credit flows to the micro, small and medium enterprises (MSME) sector.
In terms of the contribution of different sectors in incremental credit, personal loans accounted for the largest share – 41.7% – followed by the services sector at 39%. In the overall non-food credit growth of February 2021, the relative contributions of personal loans and credit to the services sector were 270 basis points (bps) and 250 bps, respectively. Unlike the sharp deceleration in credit to the industrial sector, that to the services sector accelerated during H2FY21 mainly due to robust credit offtake in transport operators and trade segments. On a financial year basis up to February 2021, credit growth to the services sector accelerated at a modest pace.
“Personal loans segment, which has generally performed well in recent years, decelerated during H2 so far primarily due to a sharp slowdown in growth of housing loans, its largest component,” the RBI said. Among other constituents of personal loans, consumer durable loans and credit card outstanding witnessed tepid growth, while loans against gold and jewellery picked up significantly.