Bank Credit

Bank Credit

Subject: Economy

Section: Economic Growth

Context:

Domestic banks’ share in the overall commercial credit plunged to a low of 34% in FY21 from 56% in FY11 partly due to the pandemic and more because companies were moving away from banks for funds.

The share of non-banks in commercial credit has more than doubled to 44% while that of foreign banks rose to 22% in FY21 according to a report by BofA Global Research.

Bank Credit?

Bank credit consists of the total amount of combined funds that financial institutions advance to individuals or businesses. It is an agreement between banks and borrowers where banks make loans to borrowers.

The Bank credit in India refers to credit lending by various scheduled commercial banks (SCBs) to various sectors of the economy.

The bank credit is categorized into food credit and non-food credit.

• The food credit indicates the lending made by banks to the Food Corporation of India (FCI) mainly for procuring food grains. It is a small share of the total bank credit.
• The non-food credit-The major portion of the bank credit is the non-food credit which comprises credit to various sectors of the economy (Agriculture, Industry, and Services) and also in the form of personal loans.

The data on bank credit is collected on a monthly basis by the RBI.

The credit market structure in India has evolved over the years. A wide range of financial institutions exist in the country to provide credit to various sectors of the economy. These include commercial banks, regional rural banks (RRBs), cooperatives [comprising urban cooperative banks (UCBs), State co-operative banks (STCBs), district central co-operative banks (DCCBs), primary agricultural credit societies (PACS), state co-operative and agricultural rural development banks (SCARDBs) and primary co-operative and agricultural rural development banks (PCARDBs)], financial institutions (FI) (term-lending institutions, both at the Centre and State level, and refinance institutions) and non-banking financial companies (NBFCs)

Bank credit

• It accounts for 92 per cent of the total non-food credit. Further on a year-on-year (y-o-y) basis, non-food bank credit registered a growth of 8.3 per cent in January 2022 as compared to 5.9 per cent a year ago.
• Credit to agriculture and allied activities registered  an accelerated growth of 10.4 per cent in January 2022 as compared to 8.5 per cent in January 2021.
• Credit growth to industry improved to 6.4 per cent in January 2022 from 0.7 per cent in January 2021.
• Credit growth to services sector stood at 7.3 per cent in January 2022 as compared to 8.1 per cent a year ago, mainly due to significant improvement in credit growth to ‘NBFCs’, along with ‘transport operators’ and ‘tourism, hotels and restaurants’.
• Personal loans segment continued to expand at a robust rate and grew by 11.6 per cent in January 2022 from 8.7 per cent a year ago.

NBFC credit growth

The credit intensity of NBFCs, measured by NBFC credit as a ratio of GDP, has been rising consistently and stood at 13.7 at end March 2021. Industry remained the largest recipient of credit extended by the NBFC sector, followed by retail loans and services.

Sectoral distribution of NBFC Credit