Non-Food Bank Credit

Non-food credit increased by 6.6% YoY in October 2017 but well below the peak of 8.4% YoY attained in March 2017.

Published monthly by Reserve Bank of India (RBI). Updated to the month of October 2017 (Published on November 30th, 2017)

Recent Data Trend

According to data published by the RBI, non-food bank credit rose by 6.6% YoY in October 2017, as against an increase of 6.7% YoY in the same period a year ago. Since the recent peak attained in March 2017 (8.54% YoY), non-food credit growth is still below the peak.

The figures for October reiterate our earlier findings of bank credit not being uniform across sectors. While non-food credit and credit to service sector has seen a close correlation(0.99), the divergence in credit towards Industry sector has been quite prominent since February 2016. As regards, the credit to industries has been declining since October 2016 and in October 2017 it declined by 0.2% YoY, though the rate of decline has reduced from 0.4% YoY in the previous month. Among the sub-components of industries, the rate of decline of credit to beverage and tobacco industry(7.7% YoY), mining and quarrying(5.7% YoY), petroleum and coal products(4.5% YoY) and paper industry(10.9% YoY), brought the overall credit to industry down.

A reason for concern arises from the declining credit to the infrastructure sector by 1.5% YoY. Another area of concern is the low level of credit to the low-income groups. They often lack proper documentation or collateral to provide for the loans and hence their loans are rejected very easily by the banks. As a result, the small-scale enterprises are experiencing a credit crunch and thus it is affecting their operations. Additionally, according to Indian Express, PSBs have written off loans worth Rs 55,356 crore in the first six months of fiscal 2017-18 which proves that there is a need to re-evaluate the lending process of the bank.

On similar lines, credit to agricultural sector decelerated to an all-time low of 5.5% YoY. Priority sector lending growth also plummeted to an all-time low of 3.5% YoY in October 2017.

On the other hand, credit to services increased by 9.4% YoY in October and personal loans to individuals saw a modest 16% YoY increase.

The declining credit to the industry has been a major roadblock on the way to robust growth in India (credit to industries and industrial production are strongly correlated (0.77)). The bank recapitalization plan of the government is supposed to provide a relief to the banking system. The current regulations introduced under the IBC by the government will further provide a support to the genuinely distressed companies. These initiatives will be a step towards resolving the twin balance sheet problem plaguing the economy and will, in turn, stimulate the investment cycle thereby boosting economic growth.

Brief Overview
The Bank credit in India refers to credit lending by various scheduled commercial banks (SCBs) to various sectors of the economy. The bank credit is categorized into food credit and non-food credit. The food credit indicates the lending made by banks to the Food Corporation of India (FCI) mainly for procuring foodgrains. It is a small share of the total bank credit. The major portion of the bank credit is the non-food credit which comprises of credit to various sectors of the economy (Agriculture, Industry, and Services) and also in the form of personal loans.

The data on bank credit is collected on a monthly basis by the Reserve Bank of India (RBI). The data is sourced from 46 commercial banks, accounting for about 95% of the total non-food credit deployed by all scheduled commercial banks (SCBs).

Since September 2016, credit to the industry has been slowing down, contracting by 1.7% for the first time in October 2016. The fall in credit to the industrial sector can be partly attributed to the twin-balance sheet problem (highly indebted companies and banking system plagued with rising NPAs) and partly due to a slowdown in credit demand post demonetization.

For further information, please visit the official government website.

Bank Credit to sub-sectors-Quarterly

Next Release Date: December 29th, 2017