A surge in gold loans has pushed retail advances to the top of bank credit for the first time. Loans to businesses have been impacted due to Covid-19, with consumer demand staying sluggish and industrial activity getting disrupted. But it will be wrong to say that corporate lending is dropping steadily as companies are shifting more to the debt market and banks are investing into corporate bonds. 

Outstanding industrial credit was at Rs 28.24 lakh crore as of 30 July while the retail loan book was a tad higher at Rs 28.58 lakh crore, according to the latest data released by the Reserve Bank of India (RBI). The data covers 33 scheduled commercial banks, which account for 90% of the non-food bank credit.

Personal loans posted a growth of 11.2% in July 2021 compared to 9% a year ago, primarily due to higher growth in loans against gold jewellery and vehicle loans.

The Covid-induced stress in the economy is getting reflected in the borrowing patterns of banks. While banks are aggressively marketing their gold loans, the borrowers are for now rushing to the banks to pawn their jewellery or borrow against their fixed deposits to meet temporary cash shortfalls like paying tuition fees for children and coughing up EMIs for either home car loans.

Gold loans are reporting a 77.4% growth over the previous year to Rs 62,412 crore as of 30 July, RBI data showed. In the same period last year, gold loans were growing at 34.7%. The other segment that has shown a spike in lending is the loans against fixed deposits, which has reported a 7.1% growth over the previous year to Rs 59,191 crore as of July 30, 2021. In the year-ago period, the loans against fixed deposits portfolio was decelerating by 14.2%.

With corporates showing no appetite for credit, banks are taking the risk by pushing forward high-yielding unsecured personal loans. As of 30 July, the personal loan segment has grown by 15.9% to Rs 8,16,592 crore over the year-ago period. In the same time last year, these loans were reporting a year-on-year growth of 12.1%. State Bank of India, Axis Bank, Federal Bank and IndusInd Bank are some of the banks who have reported robust growth in their unsecured loan book.

The coronavirus pandemic is forcing people to go for private vehicles as they are averse to using public transport as a mode of travel. This has resulted in the vehicle loan book of banks growing by 7.3% YoY to Rs 2,65,951 crore. In the year-ago period, this segment showed a 2.7% YoY growth.

Home loans, the mainstay of retail bank credit, fell to single digit growth (8.3%) from September 2020. Until July 2020, the home loan segment was growing at double digit. The year-on-year growth in home loans had even touched 19% for many months in 2019, just before the onset of the pandemic. 

On the corporate side, banks have turned cautious and companies are either repaying off their debt or turning to the corporate bond market for their financing needs. With a 2% difference between the bond market and bank credit rates, companies want to exploit the cheaper debt market for borrowing. 

“Investments are down and prospects of growth are also looking bleak. Industries do not want to take risky bets so they are trying to repay their bank loans to cut debt and bring down interest costs. There is demand from pharma, shipping and aviation but that gets offset as companies are repaying loans,” said a senior banker.  

Credit growth to industry remained subdued at 1% YoY as of July compared to 0.9% a year ago. Size-wise, credit to medium industries registered a robust growth of 71.6% as against a contraction of 1.8% a year ago. Credit to micro and small industries accelerated to 7.9% as of 30 July compared to a contraction of 1.8% a year ago, while credit to large industries contracted by 2.9% as against a growth of 1.4% in the earlier-year period. 

Within industry, credit growth to ‘all engineering’, ‘beverages & tobacco’, ‘chemicals & chemical products’, ‘gems & jewellery’, ‘infrastructure’, ‘paper & paper products’, ‘petroleum coal products & nuclear fuels’, ‘rubber, plastic & their products’ and ‘textiles’ accelerated in July 2021 as compared to the corresponding month of the previous year. However, credit growth to ‘basic metal & metal products’, ‘cement & cement products’, construction’, ‘food processing’, ‘glass & glassware’, ‘leather & leather products’, ‘mining & quarrying’, ‘vehicles, vehicles parts & transport equipment’ and ‘wood & wood products’ decelerated or contracted. 

Credit growth to the services sector slowed to 2.7% in July 2021 from 12.2% in July 2020, mainly due to deceleration in credit growth to non-banking financial companies (NBFCs) and commercial real estate. Credit to agriculture and allied activities continued to perform well, registering a growth of 12.4% in July 2021 as against 5.4 % a year ago.