India’s banks would experience their loan growth plunge in FY21, and the year is one of a financial slump. While the amount of output decline and deceleration in assets has been far lower than fretted earlier, restoration has been inconsistent. This meant donors have been careful in giving loans.
Despite the stress and the tolerance of the lockdown, banks granted ₹64 of every ₹100 of credit to retail consumers, and the majority of this went towards home loans. So, the percentage of retail in incremental credit between July 2020 and January 2021 is 64%.
The percentage of home loans within retail was 34%, followed by unsecured loans at 18.5%. This shows that banks were not only content with lending to retail customers but were even willing to proceed with unsecured loans.
While there are tensions, and retail’s bad loan ratio has increased somewhat, a large-scale restructuring of retail loans has not evolved for most banks. Moreover, large lenders such as SBI and HDFC Bank have intimated that most retail loanees have begun to repay as per the tenure after the initial struggle during lockdown months.
The most affected by the pandemic has been the services sector. The speedy improvement indicated in various high-frequency data has mainly been in agriculture and manufacturing while services are still torpid. Still, loans have been issued chiefly to wholesale, and retail trade, and non-banking investment firms. Credits to other services like tourism, transport, logistics, hotels and professional services hardly improved.
Manufacturing has been the worst-hit in terms of credit. Loans to large organizations contracted by 40% between July 2020 and January 2021. The government’s credit guarantee plans and the RBI’s targeted liquidity regulations have shored up credit to small enterprises. Of the total incremental loans sanctioned, 15% went to micro, small and medium enterprises.
Most of the FY21 has been to diminish the pandemic’s influence on the output. Bank credit has been a useful tool for keeping the business sustainable rather than growing. Experts foresee bank credit growth to increase by at least 9% in FY22.