Retail loans overtake bank credit to industries

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In the new financial year, retail loans have surpassed the overall outstanding towards industries, once the mainstay of banks in the country. As loans to industries continued to degrow, the personal loan segment has grown at a fabulous 8.6% rate in the last financial year.

According to latest data given by Reserve Bank of India (RBI), total personal loans outstanding by scheduled banks as on February 26, 2021, stands at Rs 27.74 lakh crore, recording an 8.6% growth in the previous financial year. More than a month later, the retail loans are believed to have crossed Rs 27.9 lakh crore as on April 1, 2021.

On the flipside, the total bank credit to industries has slipped to Rs 27.86 lakh crore as on February 26, degrowing at 4.1%, during the financial year 2020-21. While banks’ exposure to large industries fell 5.7% to Rs 22.79 lakh crore, micro and small-scale industries reported a drop of 1.3% to Rs 3.77 lakh crore. The medium-sized industries however showed a 21% growth to reach Rs 1.3 lakh crore as on February 26, 2021.

Question mark over capital expansion

The second wave of the pandemic has raised a big question mark on capital expansion programmes of India Inc. This may further slow down the bank credit to industries.

As per the central bank, gross bank credit has reported a 3.3% growth during the last financial year (till February 26) to Rs 95.69 lakh crore.

“Banks are rejigging their preferences towards retail loans. Both housing and auto loans are growing pretty fast as the Covid-19 pandemic reported a dip in most states during the last few months. The auto loans have shown a steady growth as many people preferred to use their personal transportation in the pandemic year,” said a Mumbai-based banker.

According to RBI data, banks have furiously grown home loans to Rs 14.4 lakh crore, with a leap of 7.6% annual growth rate. Vehicle loans have jumped 8.5% to Rs 2.39 lakh crore. The other personal loans, which include pure-play personal loans as well as loans against properties, have shown a 12.4% growth to Rs 7.8 lakh crore. Banks’ credit card outstanding has grown 7.6% to Rs 1.16 Lakh crore as on February 26, 2021.

Some banks are however going slow on pure-play personal loans as delinquencies are on the rise.

“The EMI (equated monthly instalment) culture is spreading fast. Most of the salaried are getting hooked on to a plethora of offers by banks and non-banking finance companies. For banks, the credit cards, gold loans and personal loans provide higher margins,” said another banker.

The services sector provides another growing field for bank loans. During the last financial year, bank credit to the services sector moved up marginally to Rs 26.6 lakh crore, reporting a 2.5% growth. This includes exposure to trade services of Rs 5.85 lakh crore, growing at 5.9%. However, banks’ exposure to professional services has dropped 29.8% to Rs 1.24 lakh crore.