According to data released by the Reserve Bank of India, bank credit outstanding on the last Friday of September was Rs 109.5 lakh crore. Of this, the share of loans to industry dropped to 26% (Rs 28.3 lakh crore) from 27% a year earlier. Personal loans, which were a quarter of all bank loans in September 2020, increased to 27% (Rs 29.2 lakh crore) by end-September 2021.
The drop in bank credit to the industry segment was largely due to companies in core industries deleveraging. Loans to iron and steel industries dropped by Rs 39,249 crore and loans to chemicals (which includes fertilisers, drugs and petrochemicals) shrunk by Rs 10,146 crore in the six months ended September. The few sectors which saw growth in credit were roads, ports and power. However, even this was not enough to show positive credit growth in the infrastructure segment.
Overall credit outstanding to large industry shrunk by 5% in the first six months of the fiscal. This has pulled down industrial loan growth to 2.3% despite credit to small and medium businesses rising.
In the personal segment, banks added Rs 20,096 crore of home loans to their portfolio in the last six months. They also increased their auto loan and gold loan book by Rs 3,000 crore each. Other personal loans were up by Rs 45,000 crore. Overall loans outstanding in the personal loan segment grew by Rs 73,000 crore in the six months ended September 2021. This has expanded the personal loan portfolio to Rs 29.18 lakh crore.
The data appears to indicate that banks have wrested market share from finance companies in the credit market. Typically, NBFCs borrow from banks and debt markets and lend. Bank credit to NBFCs, which is the largest component in loans to services sector, shrunk by Rs 61,124 crore in the last six months. This has resulted in the share of credit to NBFCs dropping from 9% (Rs 9.4 lakh crore) on end March 2021 to 8% (Rs 8.8 lakh crore) as of end September 2021. This has resulted in outstanding bank credit to the services sector declining by 3% since March 2021.
According to bankers, the decline in bank credit to large companies could be attributed to their deleveraging coupled with shifting to the debt market where cheaper money is available through commercial paper. Some businesses are seeing better cash realisations and do not feel the need to borrow.
In the NBFC segment, the classification of a large borrower as a non-performing asset by banks could have added to the decline in the segment. The home loan portfolio displays more consistency and does not occasionally shrink like other segments because home loans are long term and fresh disbursements have a compounding impact on the size of the portfolio.