As the novel coronavirus-induced lockdown battered Indian economy, banks saw decline in credit to all sectors during the month of April. The biggest contraction was witnessed in the personal loan segment, which has been the key component of bank's credit growth over the year.
According to a Centre for Monitoring Indian Economy (CMIE) report, the non-food credit outstanding of scheduled commercial banks (SCBs) increased 7.3 per cent year-on-year (YoY) between March 27 and April 24, higher than 6.7 per cent YoY rise recorded by March-end. The personal loan segment, which constitutes 27 per cent of all non-food outstanding loans of SCBs, accounted for 57 per cent of the fall in April.
The personal loans declined by Rs 62,861 crore, or 2.5 per cent, from an outstanding of Rs 25.53 lakh crore on March 27 to Rs 24.9 lakh crore on April 24, 2020. The contraction in personal loans that includes home loan, vehicle loan, credit card, consumer durable loan and education loan among others came after increasing more than 15 per cent in preceding months. The slowdown was largely due to slump in housing loans (which includes priority sector housing) growth, which slowed further to 13.9 per cent in April 2020. Growth in housing sector loans has been slowing since November 2019, the CMIE report said.
"After more than two years, incremental loans for housing turned negative in April 2020, implying that housing loans had fallen so sharply that they remained lower than repayments during the month," said Janaki Samant, who wrote the article.
The CMIE said that housing loans account for more than half of all personal loans, while vehicle loans and credit card outstanding are the other two relatively larger personal loans. Vehicle loans declined in April compared to March. The decline was greater than it was in April 2019, it added.
The sharpest deceleration was reported in the outstanding amount under credit cards, which declined by Rs 11,100 crore in April. Year-on-year growth dropped to 4.8 per cent in April after rising in the range of 22-33 per cent in the preceding months. Other personal loans also recorded a very sharp decline in April, the CMIE said.
Besides personal loans, industry and services sectors took a much smaller hit of Rs 20,800 crore each. The impact on industry was borne essentially by micro and small industries which witnessed its outstanding loans falling by Rs 23,500 crore. On the contrary, the large industries witnessed an expansion of credit by Rs 8,800 crore in April.
In terms of yearly growth, medium industries saw credit decline by 6.4 per cent, and micro and small industries saw credit to them decline by 2.3 per cent. But, credit to large industries grew by 2.7 per cent, the CMIE report added.