Not only the industries, even the services sector, and the priority sector are facing a contraction in credit growth.
Even as RBI cut its repo rate five times in a row to boost borrowings, credit growth to nearly all the industries has contracted in the financial year so far. While overall credit growth to the industry shrank 3.9 per cent, it contracted by around 20 per cent for a few industries, said RBI in its January bulletin. India’s credit to GDP ratio is already lower than that of its emerging market peers and now the recent contraction has further degraded the condition. The contraction in credit is an area of concern as the credit helps the businessmen to expand their businesses and make investments. This is also a pessimistic result for the government as to regain the lost momentum, Finance Minister Nirmala Sitharaman announced flagship measures such as a cut in corporate tax.
“The need of the hour is to kick-start industrial credit and use the impetus therefrom to regenerate a virtuous cycle of capex, investment, and growth. Proper risk pricing in lending is of prime importance so that the health of the banking sector is not compromised while ensuring adequate credit to the productive sectors of the economy,” RBI said in its recent report.
In FY19, out of the 19 industry sub-groups, credit accelerated only to 8 as compared with 12 in the previous year. Other sub-sectors such as food processing, textiles, paper and paper products, petroleum and coal products, gems and jewellery, and basic metals also experienced a decline in credit flows.
Not only the industries, even the services sector, and the priority sector are facing a contraction in credit growth. It shrank 2.2 per cent in the services sector and 1.6 per cent in the priority sector that includes export credit, education loans, etc. The contraction in credit also indicates a slow demand from the borrowers as the country faces turbulence on the economic front and the animal spirit is low.