Business Wire IndiaThe steady fall in non-food credit from 20.7% in FY11 to 9.1% in FY16 and a still-lower 8.3% till July FY17 is indicative of a disparity in lending to different sectors. The credit to agriculture bottomed out to 7.9% in FY13 but recovered to 15.3% in FY16, which is the same level as in FY11. Similarly, the non-food credit to services bottomed out in FY15 at 5.7% and rebounded to 9.1% in FY16 and has already touched 10.8% for this fiscal. In contrast, non-food credit to industry, which started at an impressive 22.4% in FY11, progressively declined to 2.7% in FY16 and a negligible 0.6% so far in FY17, dampening the overall credit growth score.
“A closer analysis of the non-food credit landscape reveals that high interest rates have often been wrongly blamed for the slowdown in bank lending, putting the real issue in the shade,” remarked Innovation and Knowledge Center Economic Research Manager, Aparajita Basak. “Frost & Sullivan’s analysis reveals that the accumulation of stressed assets within the banking sector, especially with the public sector banks, is a much more plausible explanation for the weakening credit growth in the country.”
To request exclusive information about the credit growth landscape in India and to schedule your one-on-one strategy dialogue with our analysts now, please send an e-mail to Ravinder Kaur/Anita Chandhoke at ravinder.kaur@frost.com / achandhoke@frost.com. The credit growth landscape provides an insight into the investment health of the Indian industry and is useful in planning future outlays.
The interest rate theory is easily debunked by the rising lending to industry by the private sector banks, despite the borrowing rates of these banks being greater than their public sector counterparts. Similarly, personal loans from the public sector are increasing even as those from the private sector banks are plateauing or falling. Evidently, the public sector banks are limiting their exposure to industry due to the past performance of high credit exposure areas.
A slew of measures rolled out by the central bank since 2014 aimed at revitalizing stressed assets have finally begun to bear fruit. In FY16 alone, six companies with an aggregate debt of INR 2,613 crore succeeded in exiting corporate debt restructurings, which rose to eight firms exiting with INR 6,000 crore debt in June 2016.
“There need to be more such initiatives with clear short-term and long-term objectives,” noted Basak. “Additionally, engaging private equity firms and enabling distressed debt funds will help speed up the cleaning of the banking sector and aid credit growth in the country.”
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The Innovation and Knowledge Center (IKC) is the fundamental research hub of Frost & Sullivan’s consulting and strategy consulting business in the Middle East, North Africa, and South Asia. It consolidates all forms of research, including technical, application-related, economic, financial and market, under a single umbrella. In addition to creating comparative studies, the economic research arm of IKC has a portfolio of products that can help market players understand the influence of various macroeconomic forces and develop strategies to best leverage them. Some of these enablers are country profiles, multi-country comparative studies, PESTLE analysis, impact analysis of global economic and political developments, investment trackers and economic pulse monitors.
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