The RBI Points out Reluctance on Bankers to Lend to Large Industries

By – Ashwathy Nair

RBI expresses concern over the contraction in credit offtake by large industries & infrastructure.
Concern has been raised by the central bank over the sharp deceleration in credit growth.
The contraction in credit to large industries & infrastructure remains a cause of concern.

Concern over the contraction has been expressed by the Reserve Bank of India (RBI) in credit offtake by large industries as well as infrastructure and it has pointed out that there is a reluctance on the part of bankers to lend to large industries.

The central bank also expressed concern about the sharp slowdown in credit growth in the home loan market, highlighting the possible negative effects on industries such as steel, cement, and construction. According to the central bank’s report on ‘Sectoral deployment of bank credit,’ the recent decline in credit growth was primarily attributable to large industries.
It was stated by RBI that “There was a general reluctance on the part of bankers to lend to large industries due to strained assets in these industries, with the problem being compounded by the pandemic.”

The report claimed that “credit contraction to large industries and infrastructure remains a source of concern.” Credit to industry dropped by 1.3 per cent in January 2021, compared to 2.5 per cent growth in January 2020, owing largely to a 2.5 per cent decrease in credit to large industries (2.8 per cent growth in January 2020). According to the latest RBI data, outstanding bank credit to large industries fell by ₹59,610 crore year on year to ₹22.78 lakh crore on January 29, 2021.

The silver lining has been the robust growth of credit to medium industries, despite the fact that credit growth to large industries turned negative in November 2020. Between November 2019 and November 2020, credit to micro and small businesses increased slightly. Credit to medium-sized enterprises increased by 19.1% in January 2021, compared to 2.8 per cent a year earlier, and credit to micro and small-sized businesses grew by 0.9 per cent in January 2021, compared to 0.5 per cent a year earlier.

In November 2020, large enterprises accounted for about 82 per cent of credit offtake to the manufacturing sector, with micro, small, and medium businesses accounting for the remainder. In recent years, credit to the manufacturing sector has remained slow. The credit growth rate peaked at 6.9% in April 2019, but it has been gradually decreasing since then, with credit growth turning negative in October 2020, according to the RBI report.

Housing loan growth slowed moderately in March 2020, according to the central bank, and this slowed further in 2020-21 as a result of the pandemic. The home loan rate dropped to 7.7% in January 2021, down from 17.5 per cent in January 2020.
The rapid deceleration is worrying because of the possible negative effects on industries such as steel, cement, and building. “In November 2020, housing loans accounted for more than half of all personal loans extended by banks. This industry has been the primary driver of personal loan growth,” according to the report.