Non-Food Bank Credit for September 2019

Credit to service sector continues to decline despite marginal uptick in overall credit growth in October.

Growth in the non-food bank credit (NFBC) stood at 8.3% YoY in October 2019 from 8.1% YoY in September. The figures for October charted a moderate expansion in overall credit as credit to industry and personal loans grew by 3.4% YoY and 17.2% YoY respectively. Though credit to industries has inched up in October, it is still a weak growth. Loans to service sector reached Rs. 23.5 trillion in October 2019, declining to a 26-month low growth of 6.5% YoY in October 2019.

Credit to service sector is on a decline for the third consecutive month reaching a single digit growth in September. NBFCs constitutes a major share of credit given to services, however the credit growth in the same has declined to 26.8% YoY in October from 40.5% YoY in the beginning of this fiscal year (April 2019 to March 2020). This decline in funds to NBFCs reflects one of the reasons for the decline in credit disbursals by NBFCs in the recent months.

On the other hand, credit disbursed to the industries (MSMEs), a reliable indicator for the industrial development, moderately inched up to 3.4% YoY in October 2019 from 2.7% YoY in the pervious month. Credit to major sub-sectors such as cement and cement products, beverage and tobacco accelerated. This comes as a good news for the cement industry which has seen a contraction for the second straight month within the core sectors in October. However, credit growth to infrastructure, textiles, and basic metals continued to decline. Under infrastructure, roads segment saw a contraction of 5.2% YoY.

Agricultural credit and priority sector lending has modestly improved from the previous month.

The marginal improvement in the bank credit can be attributed to the repo rate cut to 5.1 per cent by RBI in October. We can expect the RBI to reduce the repo rate further, in the upcoming policy meet, to boost more credit as a revival measure against the slowdown in the Indian economy, given that the GDP growth has further slowed in July-September quarter 2019 to 4.5% YoY.