Government spending boosts bank credit growth

Banks continue to lend aggressively to non-banking finance companies (NBFCs) despite doubts being raised about the strength of their balance-sheets. Bank credit to this sector rose 55% year on year to Rs 5,70,900 crore in the third quarter ended December 31, 2018. Major portion of this has flown to the government-backed NBFCs.

For example, State Bank of India (SBI) has Rs 1.12 lakh crore loan outstanding to NBFC sector, of which 63% is to government-backed entities. A senior SBI official said, "The National Housing Bank, REC, PFC and NHAI (National Highways Authority of India) are all considered as NBFCs, which is why the loan growth is looking large as they take have large requirements. But we have bought portfolios from large housing finance companies on a selective basis. The problems are more to do with borrowing short and lending on longer-term assets. The NBFCs borrow from one and repay another so the cycle keeps moving. Suddenly, when there is a small break in this cycle, then there are liability issues, making rollovers difficult."

Loans to micro-finance institutions (MFIs) also get reflected in this category. MFIs generally have ratings which are lower at BBB for the best-run institutions. So the NBFC loans can have exposures to lower-rated entities as well, added the banker.

But caution with stringent risk mitigation tools are top priority. Wary of piling up non-performing assets (NPAs), banks have slowed down unsecured credit such as personal loans and credit card spends despite the high yields. The growth in personal loans has fallen sharply. Credit to this segment stood at Rs 5,71,400 crore, up only 23.8% over the year-ago period. The category was growing at 44.5% at the same time last year.

Growth in credit card loans also slowed with outstanding growing at 31.7% to Rs 84,500 crore. This is in contrast to 36.2% growth seen in the year-ago period.

However, the asset-backed loans segments like the home loans and advances against fixed deposits showed a sharp growth. Home loans grew 14.2% over the previous year to Rs 10,96,600 crore. Advances against fixed deposits grew 24.5% over the previous year to Rs 69,300 crore, reversing a degrowth of 7.1% the same time last year. Vehicle loans saw a dip in growth to 8.8% from 9.3% a year ago, with outstanding loans of Rs1,99,200 crore.

Loans taken by industry continued to rise with total creditoutstanding at Rs 27,49,400 crore, up 4.4% over the previous year. Most of the industrial credit demand is emanating from government entities in the power, roads and other infrastructure segments as the government fast-tracks projects. Growth in the year-ago period was only 2.1%.

Bank credit growth to large industries has grown sharply to 5.1% to Rs 22,79,800 crore. Loans to medium-scale industries grew 9.2% to Rs 1,04,600 crore, reversing degrowth of 9.7% from a year ago when both public and private investments were few and far between.

"Working capital and term loans form the biggest chunk of industrial loan demand. But these are from government agencies implementing projects in the road sector. Theslowdown in unsecured credit is the direct fallout of 11 banks being under prompt corrective action where they cannot invest in any risky assets," said another

CHANGE IN PACE

• Personal loans grew 23.8% in December quarter. The category was growing at 44.5% at the same time last year
   
• Credit card outsanding grew at 31.7% to Rs 84,500 crore versus 36.2% growth seen in the year-ago period
   
• Vehicle loans saw a dip in growth to 8.8% from 9.3% a year ago, with outstanding loans of Rs 1,99,200 crore