CARE Ratings: Where is bank credit going?
CARE Ratings has come out with its report on sector-wise growth in credit. According to the rating agency, growth in bank credit is one quick indicator of the state of the economy.
February 21, 2013 / 17:46 IST
CARE Ratings has come out with its report on sector-wise growth in credit. According to the rating agency, growth in bank credit is one quick indicator of the state of the economy. While the growth in gross bank credit had slowed down from 10.7% in first three quarters of FY12 to 8.2% during the first 9 months of FY13, there was some improvement for the first 10 months (including January) where growth was 9.5% (10.4% in FY12).
In FY13 growth has been subdued due to two reasons. First, overall growth has been lower as seen in the industrial growth rate of just 0.7% for the first 9 months of the year over a low growth rate of 3.7% during the same period of FY12. Also interest rates have been held by the RBI at higher levels on account of high inflation. There was only a single round of monetary easing through interest rates at the beginning of the year. Further, banks had invested relatively larger amounts in government paper which had grown by 11.6% during this period.Some of the interesting pointsThe slowdown in growth of non-food credit is sharper than that for food credit. The procurement of foodgrains has been robust thus keeping growth in food credit at a high level.Growth in non-food credit, which accounts for around 98% of total bank credit, slowed down to 7.8% from 10.3% in the first three quarters of the previous year.Within different sectors, the growth in credit for personal loans (which accounts for around 18% of gross bank credit) has been higher than that of last year.Within personal loans, credit cards, motor vehicle loans and housing loans have all witnessed an increase in growth rate.In case of consumer durables, there was a decline in growth by 12.5%. This was also commensurate with the growth of consumer durable segment in the economy which had slowed down from 5.1% to 3.7%. Quite clearly the high interest rate environment had come in the way of creating demand for consumer durable goods. In terms of base rate changes, on an average basis there was a decline by around 25 bps at the two ends from 10-10.75% in March 2012 to 9.75-10.5% in December 2012.There was a marginal increase in share of personal loans in total non-food credit from 18.2% to 18.7%.While growth in credit to industry had slowed down from 14.6% to 7.5%, there was a fall in credit in case of medium industry.Growth in credit to agriculture had increased by 7% in nine months of FY13 over a virtual zero growth in the same period for FY12. This may be attributed more due to seasonal impact as well as steps taken by the government to encourage lending to this sector against the background of a drought in certain parts of the country.The growth in credit to the service sector has also slowed down with the NBFC sector witnessing a slower growth rate.Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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