In early signs of fresh capital investments by private sector and increased demand for loans, bank credit to industries (micro, small, medium and large) has expanded 8 per cent year on year in June 2024 compared with 7.4 per cent growth in 2023. Further, businessline’s analysis over the last five years showed that while credit offtake by micro, small and medium enterprises (MSMEs) is growing at a slower pace in the last two years, lending to large corporate has picked up steam.
Bank credit to large industries grew at 6.9 per cent in June 2024 compared with just 5.4 per cent rise in June 2023. This growth was at 2.5 per cent in June 2022 and declined 4.5 per cent in June 2021 due to the pandemic, as per RBI data. As of June 2024, outstanding bank credit to industries stood at ₹37.3 lakh crore, of which ₹26.8 lakh crore was to large industries, ₹7.3 lakh crore to micro and small entities, and ₹3.2 lakh crore to medium enterprises. Credit to MSMEs saw a spike in 2021 and 2022 after the launch of the Emergency Credit Line Guarantee Scheme (ECLGS) to tide over Covid disruptions and growth has been sober since then.
The numbers reflect the sentiment of the central banker in recent weeks.
In his statement last week as part of the MPC, Reserve Bank of India (RBI) Governor said that private corporate investment is picking up due to a combination of the government’s thrust on capex and due to expansion in bank credit. The results of the RBI’s Bank Lending Survey for April-June quarter also reflected an upbeat sentiment among bankers on loan demand across major sectors for the subsequent quarters of FY25. Easy loan terms and conditions are expected to continue in the second half of 2024-25, except for the mining sector, the survey noted.
Sector-wise offtake
Credit offtake grew the most in the metals and chemicals sector at 11.7 per cent each in June 2024. Food processing and engineering grew at 10.8 per cent and 8.8 per cent respectively in the same period. Interestingly, infrastructure, which holds the largest share among industrial credit, grew at 5.5 per cent in June 2024 compared with just 1.8 per cent annual growth in June 2023. Within infrastructure, bank credit expanded 3.3 per cent, 8.8 per cent and 7.0 per cent, respectively, in power, roads and telecommunications.
Jignesh Shial, Director - Research and Head of BFSI, InCred Capital, said credit growth to industries is a good sign for private capex, but it needs to be sustained over a longer period. “A robust double-digit growth across key sectors and not just cyclical ones will help corporate investment,” he said. “Today, there are also other avenues such as equity and bond markets that companies are able to tap for expansion funds,” he adds.
Despite the growth, bank credit to industries holds just about 22 per cent share in total bank credit as of June 2024 compared with 25.9 per cent share it held in June 2022. Total bank credit as of June 2024 was ₹168.8 lakh crore, growing 17.4 per cent.