Credit Demand from Priority Sectors Drops to 1.9 Percent in June Quarter: Report

This was led by a massive plunge in credit demand by the priority sector and personal loans, both of which have the mainstay of the banks for many quarters now as industries have not been borrowing much. While the loan demand from the priority sector plunged to a low 1.9 per cent in the June 2020 quarter from a high 10.2 per cent a year ago, the same from the farm sector declined to 4.7 per cent from 7.2 per cent. Similarly, demand from the industry fell to 2.2 per cent from 6.4 per cent, it plunged to 10.7 per cent from the services sector from 13 per cent and from personal loans fell to 10.5 per cent from 16.6 per cent.

This had the total non-food credit which excludes priority sector credit, demand nearly halving to 6.7 per cent from 11.1 per cent, says the report. Non-food credit include loans to agriculture and allied activities, industry, services, and retail (personal loans).

Growth in credit to the industrial sector which accounts for 31.8 per cent share in non-food credit, moderated on the back of slow growth in large industries which declined by 3.7 per cent in June 2020 from 7.2 per cent in June 2019; and negative growth in small business which declined by 3.7 per cent in June 2020 from 0.6 per cent growth in June 2019, and medium industries that declined by 9 per cent from 2.2 per cent growth in June 2019. Also, some large sectors like food processing, textiles, basic metals, iron & steel and infrastructure, which account for around 70 per cent of the overall industrial credit had negative to slow credit growth. The retail/personal loans segment slowed down to 10.5 per cent from 15 per cent in March 2020. However, housing loans continue to remain the single largest segment of lending in outstanding credit to retail/personal loan portfolio. Housing loans growth slowed down to 12.5 per cent in June 2020 from with 18.9 per cent in June 2019 and formed 54 per cent of the total credit to personal loan segment.

Additionally, growth in credit to service sector moderated to 10.7 per cent from 13 per cent in June 2019 on account of slow growth in credit to NBFCs which accounts for 31.6 per cent of the total service sector loans and trade segment that accounts for 21.5 per cent share in service sector loan which toned down to 25.7 per cent and 6.1 per cent respectively, in Q1 of FY21 from 37.6 per cent and 8.9 per cent respectively in the previous year. Indicating more troubles for lenders, unsecured personal loans that have been their mainstay for many quarters now, has also started to taper off which in the June quarter led the fall in overall bank credit by a full 2.5 percentage points, says the report.