First, personal loans beat industry credit
According to data released by the Reserve Bank of India, the outstanding bank loan on the last Friday of September was Rs 109.5 lakh crore. Of this total, the share of loans to industry fell to 26% (Rs 28.3 lakh crore) from 27% a year earlier. Personal loans, which made up a quarter of all bank loans in September 2020, jumped to 27% (Rs 29.2 lakh crore) by the end of September 2021.
The decline in bank lending to the industry segment is largely explained by the deleveraging of companies in basic industries. Loans to steel industries fell by 39,249 crore rupees and loans to chemicals (which include fertilizers, drugs and petrochemicals) fell by 10,146 crore rupees in the six-month period ended September. The few sectors that saw credit growth were roads, ports and electricity. However, even that was not enough to show positive credit growth in the infrastructure segment.
The overall outstanding credit to large industry fell by 5% during the first six months of the year. This reduced the growth of industrial loans to 2.3% despite the increase in credit to small and medium enterprises.
In the personal segment, banks have added Rs 20,096 crore in mortgage loans to their portfolios over the past six months. They also increased their car loan and gold loan book by Rs 3,000 crore each. Other personal loans increased by Rs 45,000 crore. The overall outstanding loans in the personal loans segment increased to Rs 73,000 crore during the six-month period ended September 2021. This brought the personal loan portfolio to Rs 29.18 lakh crore.
The data seems to indicate that banks have wrested market share from financial firms in the credit market. Typically, NBFCs borrow from banks and debt markets and lend. Bank lending to NBFCs, which is the largest component of lending to the service sector, has declined by Rs 61,124 crore in the past six months. This led to a decrease in the share of credit to NBFCs from 9% (Rs 9.4 lakh crore) at the end of March 2021 to 8% (Rs 8.8 lakh crore) at the end of September 2021. This resulted in an outstanding bank loan in the service sector down 3% since March 2021.
According to bankers, the decline in bank credit to large companies could be attributed to their deleveraging coupled with the move to the debt market where cheaper money is available through commercial paper. Some businesses see better cash flow and don’t feel the need to borrow.
In the NBFC segment, the classification of a large borrower as a non-performing asset by the banks may have contributed to the decline in the segment. The mortgage portfolio shows more consistency and does not occasionally shrink like other segments because mortgage loans are long term and new disbursements have an aggravating impact on the size of the portfolio.