Significant decline in bank credit in December 2019


Reflecting the slowdown in the economy, bank credit growth declined sharply in December 2019, finds out Shoma Patnaik

A Reserve Bank of India (RBI) study on bank credit reveals no revival in the demand for funds from user sectors. On the contrary there is sharp deceleration in the pace of bank credit during the last month of the previous year. 

On a year-on-year basis, non-food bank credit growth slowed down to 7 per cent in December 2019 from 12.8 per cent in December 2018. The sharpest decline in bank credit was in the services sector where aggregate credit growth was only 6.2 per cent from 23.2 per cent in December 2018.

The sector data published by the RBI last week on January 31, shows that, credit to agriculture and allied activities lost pace to 5.3 per cent in December 2019 from 8.4 per cent in December 2018. The credit growth to industry slowed down to 1.6 per cent in December 2019 from 4.4 per cent in the corresponding month December 2018.

Other the other hand within industry, credit growth to beverage & tobacco, leather & leather products, paper & paper products, rubber plastic & their products, cement & cement products and construction accelerated. The sectors where credit growth contracted was to the food processing, ‘chemical & chemical products, basic metal & metal products, all engineering and infrastructure industries.

Reflecting the preference of banks towards retail lending, the deceleration in personal loans  was relatively lower at 15.9 per cent in December 2019 from 17 per cent in

December 2018.

The RBI released the sectoral deployment of bank credit report on January 31. The figures are based on data collected from 39 scheduled commercial banks which account for about 90 per cent of the total non-food credit extended by banks.

Bank credit or lending is widely regarded as the barometer for the health of the economy. Demand for funds is vital to the GDP growth. An increase in bank credit reveals good demand for loans by businesses for expansion of production activities. Currently with the economy going through a consumption slump and poor demand, banks are finding it difficult to lend.

For some time now, consumers have become the mainstay of bank loan portfolio as they borrow to buy homes, cars, and for personal needs. The slowdown-hit companies have not been seeking loans much. However the latest credit figures released by the RBI shows that even consumer loans have turned slow. The automobile sector as well as the real estate sector is both complaining of a recession 

Further banks themselves are wary of funding corporate expansion plans, since many of the companies have accumulated bad debts and are incapable of servicing more loans.