Mumbai (Maharashtra): The overall bank credit growth has been low so far this year with the first 10 months registering an increase of 3.5 per cent compared with 7 per cent last year (January over March), according to Care Ratings.
With the exception of the personal loans segment, growth in credit has been low across other sectors. Growth to agriculture was 3.8 per cent (5.1 per cent), manufacturing minus 2.4 per cent (1.9 per cent) and services 0.7 per cent (9 per cent).
Around 36 to 38 per cent of total credit to seven broad segments witnessed improvement in growth this year, said Care Ratings.
"The interesting aspect of credit to the housing sector is that this has not come from the affordable segment but the non-affordable one as the loans under priority sector has de-grown in this time period by 6.6 per cent."
Besides, the higher growth in credit to non-banking financial companies (NBFCs) and commercial real estate is significant because it is in line with all measures announced by the government and Reserve Bank of India to enhance lending to these two segments.
The government has been focussing on these two segments especially after the NBFC crisis to ensure that funds are made available to them.
Care Ratings said the major disappointment continues to be manufacturing where growth in credit has been anemic -- negative for micro, small and large industry, and just about positive in medium industry.
A combination of factors have contributed to this phenomenon and include lower growth in the industrial sector (0.5 per cent in first nine months of the year), several cases in the Insolvency and Bankruptcy Code 2016 framework, deleveraging by some companies, banks' reluctance to lend, shift to external commercial borrowings (ECBs) and lower investment activity among others.
Within manufacturing, it has been observed that the growth in credit has been negative for some of the larger sectors like infrastructure, metals, chemicals, engineering and textiles.
The picture in the debt market is not too different for some select broad groups for the 11 month period April 2019 to February 2020.
Debt issuances have been fairly stagnant this year at Rs 5 lakh crore for the first 11 months of the year. However, the significant takeaway is that the share of financial services has come down from around 79 per cent in FY19 to 73 per cent in FY20.
Non-financial services have increased their share in total issuances as has manufacturing and electricity. A reason for this could be that NBFCs have moved more to banks as well as the ECB market to raise funds at a time when the government has been nudging the former to lend more to them.
Also, the cost of raising debt for some NBFCs has increased in the market which has promoted them to look at alternative routes of funding. This can also be seen to a smaller extent for construction and real estate.
"Putting both the pieces together, it can be said that the financial sector does echo state of the economy where a slowdown has been witnessed both in terms of growth in GDP expected at 5 per cent this year as well as the low industrial production growth rate witnessed so far," said Care Ratings.
While there is liquidity in the system, the demand for funds for investment purposes has not yet picked up sufficiently. The overhang of non-performing assets in the system will nudge banks to cherry-pick their credit portfolios with a higher degree of caution in the coming months, it added.