RBI says banks are reluctant to lend to large corporations
The Reserve Bank of India (RBI) has expressed concern about the decline in borrowing from large industries and infrastructures, pointing out that bankers are reluctant to lend to large industries.
The central bank also expressed concern about the sharp slowdown in loan growth in the home loan segment and the negative impact this could have on sectors such as steel, cement and construction. The most recent decline in credit growth was mainly due to large industries, said the central bank in its study on “Sectoral Use of Bank Lending”. “Because of the tight assets in large industries, there has been a general reluctance among bankers to lend to those industries, with the problem being exacerbated by the pandemic,” the RBI said.
“The decline in lending to major industries and infrastructure remains a matter of concern,” the report said. Industry lending declined 1.3 percent in January 2021, compared to 2.5 percent growth in January 2020, mainly due to a 2.5 percent decline in lending to large industries (2.8 percent growth in January 2020). Bank loans outstanding to major industries fell Rs 59,610 crore year-on-year to Rs 22.78 lakh crore as of January 29, 2021, according to the latest RBI data.
Although credit growth to large industries turned negative in November 2020, the silver lining has been robust growth in credit to medium industries. Lending to micro and small industries saw a moderate increase between November 2019 and November 2020. Lending to medium-sized industries saw robust growth of 19.1 percent in January 2021 from 2.8 percent a year earlier, and lending to micro and small industries saw a growth of 0.9 percent in January 2021, compared to 0.5 percent in January Previous year.
Personal loan growth slowed 9.1 percent in January 2021, down from 16.9 percent in January 2020.
Large industries accounted for around 82 percent of industrial borrowing in November 2020, with micro, small and medium-sized enterprises combined the rest. “Industrial lending has generally remained weak in recent years. A high of 6.9 percent was reached in April 2019, but since then borrowing has steadily declined, with loan growth turned negative in October 2020, ”the RBI study said.
The central bank said home loan growth slowed moderately in March 2020 and that slowdown continued through 2020-21 due to the pandemic. Home loan growth declined from 17.5 percent in January 2020 to 7.7 percent in January 2021. The sharp slowdown is worrying as it is in sectors such as steel, cement, construction, etc., accounting for over 50 percent of personal lending by banks in November 2020. This sector was the main growth driver in the personal credit segment, ”it said.
The recent subdued borrowing must be seen in the context of the economic slowdown linked to the Covid-induced lockdown. Bank lending growth, which had already slowed in 2019-20, suffered another setback in 2020-21 amid the pandemic. However, with the gradual resumption of economic activity, lending to the agricultural and service sectors has seen accelerated growth of late, the RBI said.
According to the RBI, borrowing is expected to pick up as the economy prepares for a smart recovery in 2021-22 due to the decline in Covid infections and the rapid roll-out of the vaccination program, as well as a series of measures announced by the Government in the Union budget 2021-22 to accelerate growth momentum.
The RBI said there are signs of a turnaround, as evidenced by a surge in home purchases recently, largely due to government support for the sector. As the economy gains momentum in 2021 and beyond, home loans are expected to pick up, it said.