Tepid credit growth: RBI data missing non-bank, debt markets

Mumbai: Though there's no denying that credit growth continues to decline, the RBI data on sectoral credit growth shows only one side of the story as credit per se has been expanding through non-banking channels, primarily in the debt market, said a report.

During the week to August 4, there was an incremental credit degrowth of Rs 1.1 trillion, according to the RBI data.

This comes after a record low full year credit growth in FY17 when credit growth slipped to the lowest in the past six decades at 5.1 per cent. This was the lowest since fiscal 1953 when it grew a tepid 1.8 per cent.

"Sectors reporting decline in loan funds in listed corporates may contradict with increase exhibited in RBI sectoral credit deployment, but this only shows that credit has flown to unlisted MSMEs.

"Overall, this augurs well for banks who are derisking and reworking their model for a better tomorrow," said the report by SBI Research.

It said interspersing RBI's sectoral deployment of bank credit data with sectors filtered from listed corporate loan funds data, shows there is a more than proportionate rise in loan funds compared to growth in the RBI data for the three-year period ended FY17 and industries that saw a decline in loan funds despite a rise in RBI credit data for the same period.

As per the report, industries that saw a more than proportionate rise in loan funds corresponding to bank credit are cement, pharma, and auto ancillaries, which have been resorting to debt market like overseas funds, ECBs, institutional borrowing, mutual funds etc and not banks.

Also, credit upgrades to downgrades ratio that is above 1 for all the above sectors, proves the RBI data wrong, "indicating such sectors due to better credit profile are able to exploit the non-banking sources also better."

Similarly, industries witnessing a decline in loan funds corresponding to bank credit are those into trading, fertilisers, rubber, plastic, possibly because they are meeting credit flow from other sources.

Also, interspersing RBI's sectoral deployment of bank credit data with sectors filtered from listed corporate loan funds data shows credit flow into certain sectors has moved away from listed sectors and that traditional lending source has also undergone a structural change.

Going by sectoral deployment of bank credit, non-food credit grew by 28.3 per cent, or a CAGR of 9 per cent, during FY14-FY17. Within non-food credit, personal loans and loans to agri and allied activities grew 56 per cent during this period yielding a CAGR of 16 per cent, said the report.

But barring these two segments, other non-food credit grew at a snail's pace at CAGR of 5.2 per cent only.

"Clearly credit to industry barely grew during the last three years. But there are exceptions like services sectors like trade, NBFCs and professional service reported healthy credit growth," it said.

"Combining auto and auto ancillaries from the listed database, it appears extent of loan funds growth is higher than one reported by RBI, showing that incremental credit to these sectors have come beyond banks," it concluded.