Indian Banks' outstanding credit declines

During January 2022, outstanding non-food credit disbursed by scheduled commercial banks (SCBs) decreased by Rs.0.95 trillion. This equates to a 0.8% decrease in outstanding credit.

The drop comes after a significant increase in outstanding credit of Rs.5.2 trillion in December 2021. In a single month, credit outstanding increased by 4.7%. Except for March, when the monthly increase in outstanding credit is quite high, monthly increases in credit outstanding are typically less than 1%.

As a result, the December increase was quite extraordinary. The 0.8% drop in outstanding credit in January may be interpreted in light of the previous month's large jump.

The third wave of the pandemic may have affected credit demand in some sectors in January 2022. Other sectors, on the other hand, remained resilient, and credit disbursement to these sectors remained strong.

Credit consumption by medium industries, wholesale trade, and NBFCs slowed dramatically in January 2022. Credit disbursement to large industries, housing, transportation operators, aviation, and retail trade, on the other hand, increased.

Credit to Medium and small enterprise

Outstanding credit to medium industries declined by 0.4 per cent in January 2022 compared to December 2021. This implies that fresh disbursals were lower compared to repayments of past borrowing.

But then December 2021 was an extraordinary month for credit offtake to medium industries. The industry saw a 22 per cent increase in SCB credit to it.

In January 2022, Rs.0.17 trillion was disbursed as credit to the micro & small industries sector. This was lower than the Rs.0.4 trillion credit disbursed in December 2021. Nevertheless, growth in credit for the micro & small industries recorded a respectable and higher-than-average monthly growth of 3.8 per cent in January 2022 on top of the nine per cent increase in credit in the preceding month.

Credit to Vehicle

Disbursals or the increase in outstanding vehicle loans slowed to a 4-month low in January 2022. Incremental loans for vehicles amounted to Rs.20 billion during the month.

This was an increase of a mere 0.7 per cent in outstanding credit over the preceding month.

Credit to Wholesale trade

Outstanding credit to wholesale trade increased by Rs.33 billion during January 2022. This was a mere one per cent increase in outstanding credit compared to the 8.6 per cent expansion recorded in in December 2021.

But then, as in the case of most other sectors, December 2021 was an exception. In the current fiscal year, credit offtake by this segment had remained quite lacklustre. Outstanding credit had declined in 7 out of the 10 months.

Bank Credit to NBFC’s

Bank credit to NBFCs, which appeared to have revived in the recent months, slowed again. Compared to the preceding month, outstanding credit had increased by 4.2 per cent in November 2021 and by 8.8 per cent in December.

But, in January 2022, it expanded by a mere 1.2 per cent. In the current fiscal year, prior to November, outstanding bank credit to NBFCs had either declined or increased by less than one per cent, on an average in a month.

Credit to Industry

There were some other sectors where the third wave of the pandemic and the large credit disbursals in the preceding month failed to dent demand for credit in January 2022.

Outstanding bank credit to large industries increased by 2 per cent in January 2022. A similar increase was recorded in the preceding month. On an average, Rs.0.4 trillion credit was disbursed in each of these months. Credit demand from large industries is showing signs of recovery after a long period of poor offtake.

Credit to Housing

Outstanding housing loans increased by 2.1 per cent in January 2022, maintaining the expansion recorded in December 2021. Housing loans of over Rs.0.3 trillion were disbursed in each of these months. The increase in outstanding loans sanctioned in January was the highest in the current fiscal year.

Credit to Transport

Credit offtake by transport operators reached an all-time high of Rs.0.1 trillion during January 2022. This translates into an increase of 10 per cent in outstanding credit which comes over a 6.6 per cent rise in the preceding month. In the current fiscal year, outstanding bank credit to transport operators had started increasing from November 2021.

Credit to Aviation

In January 2022, outstanding credit to the aviation sector increased by Rs.0.11 trillion which is a 91 per cent rise. But this seems to be a recovery from the decline in outstanding credit of Rs.0.15 trillion in the preceding month. In the months prior to December, the increase in outstanding credit had remained very subdued.

Bank credit data for January 2022 points to a strong recovery in credit demand in some sectors. With the third wave ebbing quite fast, the government has removed almost all restrictions on movement and public gatherings.

Economic revival could accelerate but, the new source of uncertainty is the Russia-Ukraine war. This might adversely affect the recent pick-up in bank credit.