Credit uptake by industries weakened as interest rates rose

Personal loans accounted for the largest share of credit growth

Mumbai: The strong growth in industrial credit in the first six months of the last financial year seems to have softened in the latter half of the year. A look at the credit figures released by the Reserve Bank of India showed that industrial credit rose seven per cent year-on-year in February, the lowest level in the last 12 months. The rise in interest rates is said to have impacted industrial credit.

In October last financial year, the industrial growth figure was 13.60 percent. The increase in industrial credit at the beginning of the financial year 2022-23 was indicative of an expansionary program or increase in capital expenditure by the private sector in the country.

Non-food credit growth stood at 15.90 percent in February compared to industrial growth, an analyst said. In October last year, non-food credit increased by 17.10 percent year-on-year. As a result of the recovery that started in the country's economy after Corona, an increase in credit was seen at the beginning of the last financial year.

Low interest rates in the banking sector were also a factor in the increase in loan withdrawals last year. However, the Reserve Bank has increased the repo rate by two and a half percent to 6.50 percent from May 2022. Another analyst said relatively high interest rates dampened credit growth.

Banks disbursed a total of Rs 18.40 trillion in loans in the 12 months ended February. Of this, only Rs 2.14 trillion was industrial credit, it is seen from the credit figures issued by the Reserve Bank.

Statistics also reveal that the highest number of personal loans have been disbursed by banks. Personal loans have been the largest contributor to credit growth in the banking sector. Of the new loans disbursed in the 12 months ended February, 37 percent were personal loans.

At the end of February, the total number of outstanding non-food loans stood at Rs 134.15 lakh crore, of which Rs 31.90 lakh crore was industrial loans, RBI data also revealed.