Outstanding bank loans shrink so far in FY21; home, decline in credit growth in the industry

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The growth rate of homebuyer and industrial borrowing declined in the seven months to October 2020 amid the general contraction in the economy due to the Covid pandemic, according to Reserve Bank of India (RBI) data. Total outstanding loans from non-food banks slowed 0.7 percent during the seven-month period to Rs.91.46631 billion from Rs.92.11544 billion in March, compared with growth of 0.3 percent in the same period last year.

Total outstanding home loans rose just 2.6 per cent to Rs 13,73,277 in the April-October period, up from a 9.4 per cent growth in the same period last year. On an annualized basis, the growth rate fell to 8.2 percent from 19.4 percent a year earlier, according to the latest RBI data.

On the other hand, loans to industry slowed 5.7 percent to Rs.27,39,841 crore in the seven-month period from Rs.29,05,151 crore in March, compared with a 3.4 percent decline a year ago. Outstanding loans from micro, small and medium-sized enterprises (MSMEs) fell 5.3 percent and large industry fell 6.7 percent. However, the middle sector showed growth of 16.6 percent, according to RBI data.

“YoY, total non-food bank loan growth slowed to 5.6 percent in October 2020 from 8.3 percent in October 2019,” RBI said. Personal loans saw decelerated growth of 9.3 percent in October 2020, compared to 17.2 percent growth in October 2019. Within this sector, auto loans continued to perform well, registering an accelerating growth of 8.4 percent in October 2020, compared to growth of 5, 0 percent in October 2019. Credit growth to agriculture and related activities accelerated to 7.4 percent in October 2020, from 7.1 percent in October 2019.

Year-on-year, loans to industry fell 1.7 percent in October 2020, compared to growth of 3.4 percent in October 2019, mainly due to the 2.9 percent decline in loans to large industry in October 2020 (growth of 4.2 percent). a year ago), although loans to medium-sized industries recorded a robust growth rate of 16.6 percent in October 2020 (1.2 percent a year ago).

According to Rajkiran Rai, MD and CEO of Union Bank, sanctions and outstanding claims do not correlate. “We make a lot of investment loans through bonds. Companies canceled bonds, but these were cheaper and they were paying back their outstanding loans. In addition, working capital utilization at large companies declined during the Covid period. As a result, the credit outstanding in the system has decreased. But the sanctions have been quite decent during this period compared to the same period last year,” he said.

“Some segments like MSMEs and large corporations are hiring, but payouts will take time. We expect to see a near double-digit growth rate through March,” he said.

According to RBI, loans to food processing, petroleum, coal products and nuclear fuel, leather and leather products, paper and paper products, and vehicles, vehicle parts and transportation equipment within industry posted accelerated growth in October 2020 compared to growth in the corresponding month last year. However, credit growth for beverages and tobacco, rubber, plastics and their products, chemical and chemical products, cement and cement products, all engineering, precious stones and jewelry, infrastructure and construction contracts.

Loan growth to the service sector accelerated to 9.5 percent in October 2020, from 6.5 percent in October 2019. Within this sector, loans to professional services, computer software and trade recorded accelerated growth in October 2020 compared to growth in the corresponding month of the previous year, the RBI said.

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