Credit flow from the banking sector was mostly absorbed by the industrial segment in the period up to 2014, but later all banking sectors turned their attention to increasing the proportion of persons. Loan Retail high flow. It got worse for industries during the pandemic, the study published in the RBI’s latest monthly bulletin notes.
An analysis of the sectoral composition of non-food credit by a team of economists from the Reserve Bank of India shows that the share of the industrial sector in overall non-food credit offtake, which was over 45 per cent in 2013-14, has come down to around 30 per cent. left. by 2020-21. The sector still accounts for the largest share of overall bank credit, followed by retail credit, services and agriculture.
In the past few years, credit to the retail and services sector has gained more prominence. The muted performance of credit to the industrial sector was on account of low demand for industrial bank credit, alternative sources of financing like Foreign Direct Investment (FDI), equity, bonds, debentures, etc. along with some risk aversion factors. of banks due to the problem of stressed assets in some large industries. The RBI study said the slowdown in credit growth worsened in 2020-21 after the outbreak of the COVID-19 pandemic.
Evolving patterns in credit allocation across sectors assume greater significance, as banks’ credit allocation strategies can have a potential impact on the economy, especially in the case of emerging market economies (EMEs) such as India, where capital to support is scarce. Is. Economic development according to the authors.
An analysis of data from thirty-three select banks on the study shows that both the major-groups, comprising the six major banks, were raised on the basis of their share in non-food credit, and the other-groups comprising the rest of the banks, gave loan. aggressively for industrial as well as other sectors.
The sharp slowdown in industrial credit, particularly by other group of banks, requires attention and steps have been taken to enhance credit offtake, commensurate with appropriate risk-taking, many of which have already been taken by the Government and the Reserve Bank. which can stop the loan. The authors said the credit market for the industrial sector and helps revive the growth momentum derailed by the Covid-19 pandemic.