Bikky Khosla | 31 Dec, 2019
A report released by the
Reserve Bank of India (RBI) last week raised concern about poor credit growth,
again. According to the report, "Trend and Progress of Banking in India
growth revival that began in 2017-18 maintained momentum into 2018-19, led mainly
by private sector banks, but it has turned anaemic in 2019-20 while the
overhang of NPAs remains high. These findings raise concern which needs to be
A detailed look shows that bank
credit to industry decelerated in 2018-19 and in 2019-20 so far, partly tracking
the slowdown in industrial production. In fact, in 2018-19, out of the 19
industry sub-groups, credit accelerated only to 8 as compared with 12 in the
previous year. In the agriculture sector, credit growth was witnessed in
2018-19, but it has declined significantly in first half of 2019-20. Similarly,
retail loans grew in double digits in 2018-19, but fell in H1: 2019-20. These
trends are discouraging.
As far as MSME credit is concerned, credit growth to
the sector accelerated in 2018-19 from the previous year, but it was because of
aggressive credit expansion by private sector banks (PVBs) while share of public
sector banks (PSBs) decreased from 65 per cent in 2017-18 to 58 per cent in
2018-19. It is interesting also to note here that although the number of
accounts of PVBs was nearly double that of PSBs, the average amount of loans
extended by PVBs was Rs 2.75 lakhs - much lower than Rs 7.79 lakhs by PSBs.
Meanwhile, a more recent report by the central bank cautioned
that asset quality of scheduled commercial banks may worsen next year and there
remains an inherent risk of "froth" - conditions that precede a market bubble - building
up in the system due to excess liquidity. The report adds that reviving private consumption
and investment while being vigilant about developments in global financial
markets remain a critical challenge. It will be interest to
see how the government and the RBI react to this challenge as well as the
ongoing credit crunch.
invite your opinions.