New Delhi: Industrial credit growth hit a one-year low of 7% in February, Business Standard reported, citing Reserve Bank of India data.
The newspaper reported that the slowdown in industrial credit was much sharper than overall non-food credit, which continued to grow in double-digits at 15.9% year-on-year in February. It was marginally higher in January at 16.7%.
Industrial credit comprises loans to industrial projects in private sector, with an aim to promote new industries and to assist the expansion and modernisation of existing industries.
The report also said that the sharp recovery in industrial credit from banks in the first half of financial year 2022-23 appears to have tapered off.
In October, industrial credit grew at a decadal high of 13.5%.
The daily reported that banks disbursed fresh loans worth Rs 18.4 trillion in the 12 months till February, and only 11.65% of the loans (or Rs 2.14 trillion) went to industry. Interestingly, this was even lower than the fresh loans issued for agriculture, it added.
Personal loans, on the other hand, accounted for 37% of all fresh credit in the 12-month period. Nearly 32% of fresh loans were issued to firms in the service sector.
Experts told the business daily that the slowdown in industrial credit points to the waning importance of the sector to India’s economic growth.
G. Chokkalingam, founder and managing director, Equinomics Research, told Business Standard, “India’s GDP growth is now largely driven by services such as finance, IT, and personal services, and the farm sectors. In contrast, there has been a decline in contribution from industry, including manufacturing, in recent quarters.”
This has translated into sub-optimal capacity utilisation in sectors such as cement, metals, automotive, chemicals and pharmaceuticals, resulting in little to no investments in new projects and capacity expansion by private firms.
A report curated jointly by Andromeda and Equifax said that the number of retail loans increased by 12.5%, from 35 million in March 2020 to 40 million over one year.
With respect to the book size of personal loans, the figure increased by 33.33%, from Rs 6 lakh crore in March 2021 to Rs 8 lakh crore, a year later, Outlook Money reported. In March 2022, the number stood at Rs 5 lakh crore, the report added.
In fact, according to another report by Equifax and Fintech Association for Consumer Empowerment, personal loans remained the dominant fintech product in the first half of financial year 2022-23, Business Insider reported. The highest number of personal loans are disbursed in less than Rs 5,000 ticket size, the report said.
Meanwhile, it’s also interesting to observe that India’s household financial savings touched a 30-year low in the first half of FY23.
Despite the lower gross financial savings, the liabilities of households increased to 5% of the GDP during the same period, indicating people may have borrowed to spend on basic needs.
The report by Motilal Oswal Securities estimated that the net financial savings of households at around Rs 5.2 trillion in the first half of FY23, as compared to Rs 17.2 trillion in FY22.