DNA Money Edit: Economic growth without bank credit growth?

It is difficult to sustain an economy for long in the absence of growth in the bank credit. The only segment of bank credit that is growing is the loans to services and unsecured credit like personal loans and credit cards. Up until the end of August, generally considered a busy season, credit to agriculture increased by only 6.8%, much slower than 13.4% reported in the year-ago period.

Deterioration in the agri portfolio due to a spate of loan waivers was impacting the asset quality of banks, leading to many lenders slowing credit to the sector. If one looks at the industry segments, bank credit contracted by 0.3% in contrast to an increase of 0.6% in the same time last year. Unless stalled projects are revived and brought on stream, we could be looking at a prolonged period of slowdown.

Credit growth to major sub-sectors such as infrastructure, basic metal & metal products, textiles, petroleum, coal products & nuclear fuels and all engineering sectors witnessed contraction or deceleration. If industry segments do not borrow, then it means that production is slowing and job losses will only accentuate, impacting the ever little bank credit that is flowing into segments like construction, cement & cement products, rubber, plastic and tobacco-related segments; it is already happening. Credit to services sector increased just by 4.9% in August 2017 as compared to 10.8% growth a year ago. Personal loans also slowed down to 15% from 18.8% the same period last year.