Personal loan out standings high led to slowdown in lending

The last quarter has seen the credit crunch struck India. The Reserve Bank of India has provided the disaggregated credit data from it can be known how bad it was and to whom did the banks lend?

According to the data personal loans outstanding went up by Rs16,384 crore between 29 August and 19 December, for the two dates for which data have been provided. This means an increase of just 2.9% over the level on 29 August.

This is in contrast to the rise of Rs24,044 crore between 23 May and 29 August, therefore it is clear that distribution of personal loans has suffered a severe slowdown.

In the personal loans segment the out standings on account of housing loans increased by a mere Rs2,879 crore, or 1%.

The possible reason for this may be the rising non-performing assets in credit cards which must have spooked the banks, as credit card out standings rose just Rs303 crore over the period.

However education loans, rose by Rs2,965 crore over the period, a rise of 12.5%.

On the other hand real estate loans continued to increase, going up by Rs8,267 crore, or 12%.

Loans to non-banking financial companies rose by 11.7% over the period. However loans to the services sector, including real estate, increased by 4.5% over the period. Lending to industry was quite profitable showing a growth of 9.5%, or Rs86,251 crore. But a major portion of that—Rs17,221 crore—was on account of the increase in advances to the petroleum sector.

While the loan out standings to the infrastructure sector went up by Rs27,846 crore over the period, or a rise of 13.3% ,over the 29 August level.

And in spite of the clamor by industry, there were considerable increases in advances to textiles, construction, iron and steel.

Therefore in spite of the acuteness of a credit crunch over the last quarter, data advocates that much of the slowdown in credit was not in the industrial sector but in personal loans.

Hence loan outstanding to the priority sector fell slightly, signifying that lending to weaker sections has declined.

Thus, industry has been clamoring about a credit crunch not because banks are not giving loans but because the loan amount they are getting has not been enough to fill the gap caused by the drying up of other sources of funding.