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 2018-19", credit 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 addressed urgently.

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.