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Lacklustre credit expansion
While the bloating of Non-Performing Assets (NPA) has weakened the banking sector, the poor record in credit expansion has also recently added to its misery.

According to a recent press release by the Reserve Bank of India, there has been a marginal decline in the deployment of gross bank credit during the year ended March 2016. The data is provisional and relates to 46 scheduled commercial banks accounting for 96 per cent of the total credit of the banking sector.

Low credit expansion...

Between 26 June 2014 to 24 June 2015, credit growth was only 7.3 per cent, against the expansion rate of 8.0 per cent during the previous period.   Take March data, and the rate of credit expansion slips lower. From Rs. 61,023 billion as on 20 March 2015, the volume of gross credit has increased to Rs. 66,295 billion as on 24 March 2016, registering an expansion rate of only 5.5 per cent.

This decline in total credit was due to the massive fall in food credit. Contraction of credit flow was visible in sub-sectors like food processing, infrastructure, gems and jewelry and vehicle parts and transport equipment. Food credit, which constituted 20.2 per cent of the total gross credit, came down to 11.4 per cent during this period.

Not many changes in sectoral deployment

Expansion in industrial credit was 0.6 per cent in June 2016 compared with an increase of 4.8 per cent in June 2015. On the contrary, advances to agriculture and allied activities have risen by 13.8 per cent compared to an increase of 11.1 per cent.

The priority sector advances grew by 11 per cent during the financial year 2016. Services were the other sector to witness an increase of 9 per cent compared to an increase of 6.9 per cent in the previous year. Personal loans have increased by 19.3 per cent during FY 2016. With the rapid growth in credit cards, there has also been an increase in the amount outstanding from the 24.50 million credit cards issued as on March 2016. The amount outstanding has grown from Rs. 305 billion to Rs. 377 billion by March 2016. The number of transactions made using credit cards has increased much faster at the point of sales as against 0.61 million at ATMs.

There is almost stagnation in the flow of credit to segments like tourism, hotels, restaurants, and shopping.  There is a decline in micro and small industries (Rs. 3,800 billion to Rs. 3715 billion) as well as medium industries (from Rs. 1245 billion to Rs. 1148 billion during FY2016.

Food processing industries have not received additional credit support, resulting in a decline in outstanding credit from Rs. 1715 billion to Rs. 1501 billion. Sugar and edible oil industries have witnessed a fall in their credit intake, while other industries in food processing have witnessed a decline from Rs. 1058 billion to Rs. 866 billion in March 2016.

Some increases cause concern

Some segments that appear to have received benevolence from the banking sector are causing concern because of the significant share of stressed assets they carry. The iron and steel industry is one of them. Advances to this area have increased from Rs. 2834 billion to Rs. 3115 billion by 18 March 2016. Last year, the Reserve Bank of India warned banks to reduce their exposure to this sector. Part of the outstanding level of credit may be due to the increase in NPAs. Advances to the housing sector have increased by 20 per cent. Housing, no doubt, is an important segment of the economy and also has welfare implications, but banks are saddled with a growing volume of Non-Performing Assets in this sector too.

While the characteristic feature of the Indian banking sector has been the predominance of small borrowers, the amount of credit availed by the top ten borrowers is Rs. 5.78 lakh crore. Though banks hesitate to classify some of the large borrowers as defaulters, the Non-Performing Assets in many of these borrowings make a dent in the banks’ profits.

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