Moneycontrol PRO
Exclusive Offer for New Credit Score Users Check your Credit Score and Get Rs 100 Cashback!
you are here: HomeNewsOpinion

RBI’s credit deployment data add to existing anxiety pangs

Recent spurt in personal loans certainly bears close watching, but trends in industry too are sending confusing, if not worrying, signals 

November 16, 2023 / 09:26 AM IST
What muddies the water is the measly 3% growth in credit outstanding of the infrastructure sector, with credit availed by ports, airports and power producers shrinking over the past 12 months

What muddies the water is the measly 3% growth in credit outstanding of the infrastructure sector, with credit availed by ports, airports and power producers shrinking over the past 12 months

The financial sector’s attention has been focused on risks that could spring from the recent spurt in personal loans, provoking even Reserve Bank of India (RBI) Governor Shaktikanta Das to send a message to bankers to keep a close watch on that metric. As a central banker, Governor Das was justified in alerting bankers to a source of likely future risk. Venturing further afield, it seems there is another variable that merits closer inspection.

The RBI’s September data for sectoral deployment of credit shows outstanding credit on September 22, 2023, has grown by 20% over the past 12 months (from September 23, 2022). However, this is a bit of an apples-to-oranges comparison: the credit outstanding data for the 12 months under review also includes the loan book of property financier Housing Development Finance Corporation (HDFC), which was merged with HDFC Bank a few months ago. The previous 12-month period ending September 23, 2022, does not include the non-bank’s data because the RBI only considers credit advanced by scheduled commercial banks.

Shorn of the merger effect, outstanding credit growth for the 12 months till September 22, 2023, was 15.3%, a slightly lower growth rate than experienced in the previous year. In broad sectoral terms (data in brackets represent the y-o-y growth after stripping out the merger effects), credit to agriculture and allied industries grew by 16.8%, to industry by 7.1% (6.5%), services 25.1% (21.3%) and personal loans by 30.4% (18.2%). Within this broad sectoral credit growth story, two pain points stand out which need closer examination.

The first is data from export credit. Even though export credit’s contribution to overall credit is negligible – on 24 March, 2023, export credit outstanding did not even amount to 1% of total credit outstanding – it provides indications for the broader economy. Export credit has been shrinking every year for the past few years, reflecting the slowdown in overall exports. Trade data from the commerce ministry shows that India’s total merchandise exports for the six months between April-September 2023 amounted to $211.39 billion, almost 9% lower than the $231.72 billion achieved during the same period in 2022.

So, why worry about a line item that does not add up to even 1% of the total credit? For one, slowing export growth directly affects growth of gross domestic product (GDP). But, at a more granular level, the crunch is felt primarily by the manufacturing industry as capacity is rendered surplus.

This is an emerging risk and is borne out by RBI’s credit deployment data. Credit availed by industry – micro and small, medium and large – grew by only 7.1% (6.5%) in the 12 months till September 22, 2023. There has been a palpable slowdown in all categories, particularly large industry. This trend is further corroborated by the index for industrial production (IIP) – a government benchmark for assessing factory output – which grew only 6% during April-September 2023, compared with 7.1% for the same period in the previous year. Manufacturing, with a weightage of over 77% in the index, witnessed only 5.7% growth during the period.

RBI’s data on industry-wise deployment of gross bank credit clears the picture somewhat. Over the past 12 months ending 22 September, credit growth in many industries has been spectacular – for example, credit outstanding for beverage and tobacco industry has jumped by 43%, wood and wood products by over 23%, glass and glassware by 42%. But these industries do not move the needle much: for example, the cumulative weight of beverages and tobacco in IIP is only about 1.8%.

What muddies the water is the measly 3% growth in credit outstanding of the infrastructure sector, with credit availed by ports, airports and power producers shrinking over the past 12 months. This raises questions about whether the government’s continuing focus on capital expenditure is having the desired impact, specifically the goal of crowding in private sector investments. Credit growth down the value chain is showing some encouraging signs: 18% for the cement industry, and 19% for basic metal and metal products industry. But data from the user industries of either cement or metals are sending confusing signals: 5% credit growth in the construction industry, or 6% in the non-electronic engineering sector. Likewise, a conflicting fog hangs over the production data.

The confusion is probably compounded by leads and lags in the industry value chain. But it is the continuing uncertainty over industrial revival, especially India Inc’s reluctance to increase capital expenditure to complement government efforts, that is adding a layer of potential risk to growth prospects. Coming on top of the RBI’s perceived riskiness in the personal loan portfolios of banks, it adds a new crease to the central bank’s growing lines of anxiety.

Rajrishi Singhal is a senior journalist. Views are personal and do not represent the stand of this publication.

Rajrishi Singhal is a senior journalist.
first published: Nov 16, 2023 08:27 am

Discover the latest business news, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!

  • PRO Panorama

    Moneycontrol Pro Panorama | Investors rediscover Coal India

    Nov 17, 2023 / 03:04 PM IST

    In today's edition of Moneycontrol Pro Panorama: Nifty fiscal earnings may outpace last year, slowing inflation a good omen for in...

    Read Now
  • PRO Weekender

    Moneycontrol Pro Weekender: Crystal ball gazing 

    Nov 18, 2023 / 09:51 AM IST

    It's that time of the year when economists and market strategists start making their forecasts for the year ahead

    Read Now