Personal loans surpass credit to industry in first quarter

During the second quarter of the current fiscal year, the share of personal loans in bank credit overtook overall loans to the industry sector for the first time. As of end-September 2021, loans to industry had shrunk by Rs 66,239 crore over March 2021 levels, while loans to individuals had increased by Rs 73,011 crore, reported The Times of India quoting the data released by the Reserve Bank of India.

The RBI data showed that the bank credit outstanding on the last Friday of September was Rs 109.5 lakh crore. The proportion of loans to industry fell to 26% (Rs 28.3 lakh crore) from 27% a year before. Personal loans, which accounted for a quarter of all bank loans in September 2020, had risen to 27% (Rs 29.2 lakh crore) by the end of September 2021.

The decline in bank lending to the industry segment was mostly attributable to steps taken for debt reduction by industry players.

The drop in bank credit to large corporations, according to bankers, can be linked to their deleveraging combined with a shift to the debt market, where cheaper money is accessible via commercial paper. Some organisations are seeing greater cash flow and don’t need to borrow as much.

In the six months ended September, loans to the iron and steel sectors fell by Rs 39,249 crore, while loans to chemicals (which includes fertilisers, pharmaceuticals and petrochemicals) fell by Rs 10,146 crore. Roads, ports and power were among the few sectors that enjoyed credit expansion. However, this was insufficient to demonstrate significant credit growth in the infrastructure sector.

Increase in home, auto and gold loans

In the first half of the current fiscal year, total credit outstanding to large industries fell by 5%. Despite an increase in credit to small and medium firms, this has slowed industrial loan growth to 2.3%.

Banks gave Rs 20,096 crore of home loans in the last six months. They also disbursed Rs 3,000 crore to each of auto and gold loan books. The other personal loans increased by Rs 45,000 crore. In the six months ended September 2021, total loans outstanding in the personal loan segment increased by Rs 73,000 crore. The personal loan portfolio now stands at Rs 29.18 lakh crore.

Post-Covid distress behind increasing personal loans

The demand for gold loans and personal loans is increasing due to the financial stress caused by the Covid-19 disruptions. The demand for gold loans was strong in the last fiscal year and in 2021-22 the trend continues. Individuals and micro enterprises are turning to gold loans for working capital and personal needs, respectively.

Gold loan portfolio of banks surged by 59.1 per cent to Rs 63,770 crore as on September 24, 2021 from Rs 40,086 crore as on September, 2020, the Hindu Business Line reported quoting the RBI data.

Five private sector lenders— HDFC Bank, IndusInd Bank, Yes Bank, IDFC First Bank and Federal Bank— showed growth in their loan books and advances for the July-September quarter of 2021-22, Business Today reported recently. The loan growth for banks mostly came from the retail segment, especially from mortgages, cards and personal loans.