Bank lending to infra sector shoots up 45% in 2-yr period

Bank credit to the infrastructure sector shot up by over 45% in the years 2008-09 and 2009-10. That's the biggest takeaway from the details of the sectoral distribution of credit that the central bank made public recently.

The RBI's revelations indicate that from November 2008 to November 2010, credit to the infrastructure sector grew by 110% from Rs 2.2 lakh crore to Rs 4.82 lakh crore. Overall credit in the same period however grew only by 9% and 22%, a total of around 31%, and this amounted to Rs 8 lakh crore.

Of the total Rs 8 lakh crore of extra loans given by banks in two years, over Rs 2.5 lakh crore was taken away by infrastructure itself.

The danger of this is that infrastructure loans by their very nature are 10-15 year loans. Typically, a bank's sources of credit are deposits, which are between six months to a maximum 3-4 years. If some infra loans don't come, then depositors cannot be repaid creating an asset liability mismatch.

For the past many years, banks haven't lent and hence are reaching their sectoral limits. Even so, it looks like a difficult situation and further bank loans to the infrastructure sector looks tough with the overload in place.

However, any fears abounding that commercial real estate has been given credit can be dispelled. Commercial real estate has grown as much as overall industrial credit. Over the two-year period from November 2008 to November 2010, they grew by 28%. Commercial real estate's share in overall credit is only 3%.

Following are the sectors that performed badly. SMEs have got much less credit (16%) than the overall industrial average of 24%. Retail trade received 6%, while personal loans were the worst performers with only 12% in 2010. Housing sector got 9%. Petroleum and coal mining have fallen by 14% in 2010, while fertiliser dipped by 21% in 2010. Transport equipment got 16%, an underperformer as compared to the national average of 24%.