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Large corporates relying lesser on bank funds, shows RBI study

Dominance of large corporate accounts in banks’ loan portfolio that lasted until 2014, has diminished since then and got even worse during the pandemic, finds an RBI study

The credit flow from the banking sector was absorbed mostly by the industrial segment in the period up to 2014, but subsequently all the banking segments turned their attention to individuals raising the proportion of loans flow to retail high. During the pandemic it worsened for the industries, the study published in RBI’s latest monthly bulletin notes.

An analysis of the sectoral composition of non-food credit by a team of RBI economists reveals that the share of industrial sector in overall non-food credit offtake, which stood at over 45 per cent in 2013-14, declined to around 30 per cent by 2020-21. The sector still accounts for the highest share in overall bank credit followed by retail loans, services, and agriculture.

Over the years, retail and services sector credit have gained more prominence. The muted performance of credit to the industrial sector was because of factors like subdued demand for industrial bank credit, alternate sources of financing like foreign direct investment (FDI), equity, bonds, debentures, etc., coupled with some risk aversion on the part of banks owing to the problem of stressed assets in a few large industries. The slowdown in credit growth got further compounded after the outbreak of COVID-19 pandemic in 2020-21, the RBI study said.

The evolving patterns in credit allocation across sectors assume greater significance, as banks’ credit allocation strategies could have a potential impact on the economy, particularly in the case of emerging market economies (EMEs) like India, where there is a paucity of capital to support economic growth, according to the authors .

An analysis of data for thirty-three select banks on the study reveals that both the dominant-group, comprising six leading banks picked up based on their share in non-food credit, and the other-group comprising the rest of the banks, lent aggressively to the industrial as well as other sectors.

The sharp slowdown in industrial credit, especially by other-group of banks, warrants attention and steps to step up credit offtake commensurate with appropriate risk-taking, a number of which have already been taken by the government and the Reserve Bank, could defreeze the credit market for the industrial sector and help in reviving the growth momentum derailed by the Covid-19 pandemic, the authors said.

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