With policymakers pitching for 9 per cent growth in the coming fiscal on the basis of the Budget, one would have expected robust growth in bank credit the preceding period. All through the preceding months of the current fiscal, the RBI and North Block have been expressing confidence in the uptick in lending by banks. While it may not have reached the steamy growth of the period before September 2008, when it touched almost 30 per cent month-on-month, data do show an increase since April 2010. The point, however, is: what kind of growth has that been?
Data released by the Reserve Bank of India on sectoral deployment of bank credit between April 2010 and January 2011 show an increase of 14.6 per cent in non-farm credit over the corresponding period of the previous fiscal. While this is an improvement, the average does not appear very significant for an economy that was already on the upswing in 2010-11. This becomes clear from the details of deployment: most of the incremental bank credit was skewed in favour of hotels, tourism and restaurants, that recorded 45 per cent loan growth; those to NBFCs such as gold loan companies followed, though microfinance too witnessed a spurt, despite the uncertainties in the aftermath of the Andhra Pradesh Government's strictures and the Malegam panel report. With Mr Mukherjee promising a speedy outcome of the panel's nostrums, the sector should witness a revival. Loans to industry grew less significantly than for professionals such as doctors and chartered accountants, which spurted 33 per cent. Loans for medium and large industries expanded just 24 per cent, while small and micro industries — that feed the large in the supply chain — grew just 5 per cent. Contrary to these trends, loan growth to the farm sector declined marginally over the corresponding period of the previous year — a fact that should worry Mr Mukherjee and others hoping for a historic farm GDP growth of 5.4 per cent in fiscal 2012. North Block's optimistic growth projection relies on the sustained bounty of Nature and not on any major breakthrough in policy initiatives; what we now have is evidence that the farm sector still remains the poor country cousin for banks, unless the budgeted extension of interest rate subventions to short-term crop loans excites banks.
Banks may point to the spurt in commercial credit growth mid-year; but that was for the 3G auctions. It is time that pace of credit flowed to the overall organised sector; for a GDP of 9 per cent, credit to both industry and agriculture must be stepped up.