RBI recently released the Handbook of Statistics on the Indian States for 2020-21. Data from the handbook clearly indicates that the amount of ‘Outstanding Credit’ of Scheduled Commercial Banks to the Industry has reduced by the end of March 2021, clearly indicating the impact of COVID-19.
The Reserve Bank of India (RBI) recently released the Handbook of Statistics on Indian States for 2020-21. Amongst the various data points provided in the report, is the information on banking. The information relating to scheduled commercial banks (SCBs) provides insights into the banking sector across the country like deposits, outstanding credit, outstanding credit by sector, number of branches, etc.
The SCBs extend credit in form of personal loans, credit to agriculture, industries, home loans, etc. Policy decisions of the government, prevailing economic situations among other factors influence the amount of credit extended by the SCBs. Local factors in states & regions also influence the credit decisions of SCBs.
In the first of the two-part series, we analyse the trends in ‘Outstanding Credit’ of SCBs across states with specific reference to credit extended to agriculture & industry. Since the amount of credit extended in a particular year is not available, the ‘Outstanding Credit’ is a useful proxy to understand the progress of credit in states to particular sectors.
The data mentioned in the RBI reports is the amount of ‘Outstanding Credit’ of SCBs as of 31 March (end march) of a particular year. For instance, the amount of ‘Outstanding Credit’ in 2021 means the amount outstanding as of 31 March 2021.
‘Outstanding Credit’ of SCBs increased more than five-fold in 15 years
By the end of 2020-21, the total ‘Outstanding Credit’ of SCBs across all the States & UTs was Rs. 110.78 lakh crores. The data over the 15-year period i.e., from 2007 to 2021 shows a year-on-year increase in the total amount of ‘Outstanding Credit’ of SCBs. In 2007, the total ‘Outstanding Credit’ of SCBs was Rs.19.47 lakh crores.
After an incremental growth rate during the initial years, the growth rate tapered off since 2012, with a single-digit growth rate between 2015-17. The growth rate picked up in 2018 but has again slowed down in the last two years. The impact of COVID-19 could be one of the reasons for the slower growth rate in ‘Outstanding Credit’ of SCBs (which also means slower growth of credit extended by SCBs).
RBI also provides information on ‘Outstanding Credit’ based on loans extended to different sectors. Data indicates that since 2014, there has only been marginal growth in the ‘Outstanding Credit’ in the case of loans to industries. In fact, the value of ‘Outstanding Credit’ of the loans extended to ‘Industry’ was Rs. 30.97 lakh crores by the end of 2020-21, less than Rs. 32.23 lakh crores by the end of 2019-20 and Rs. 31.95 lakh crores by the end of 2018-19.
While the growth in ‘Outstanding Credit’ in the case of loans to the agricultural sector is lower than in the case of ‘Industry’ & ‘Personal Loans’, it has increased year on year.
Comparatively, there is a higher increase in the ‘Outstanding Credit’ of the loans extended in form of personal loans, especially after 2016. The increase in the ‘Outstanding Credit’ in the personal loans category could be reflective of the impact of the economic slowdown, with an increasing number of people resorting to personal loans to meet increased expenses. In fact, the amount of ‘Outstanding Credit’ in the case of credit extended as ‘Personal Loans’ has more than doubled between 2016 & 2021, from Rs. 12.58 lakh crores by the end of March 2016 to Rs. 28.74 lakh crores by the end of March 2021.
Maharashtra, Delhi & Tamil Nadu account for a major portion of the ‘Outstanding Credit’ of SCBs.
As per RBI data, the Southern Region, followed by the Western and Northern region account for the greatest ‘Outstanding Credit’ of the SCBs. The lower ‘Outstanding Credit’ for the North-Eastern region is understandable due to the smaller size of the states. However, Central India & Eastern India, despite being home to large states account for comparatively lower ‘Outstanding Credit’ of SCBs compared to the aforementioned three regions. In other words, the credit extended by SCBs in the eastern & central regions is also lower than the southern western & northern regions.
- Maharashtra has the greatest ‘Outstanding Credit’ of SCBs. By end of 2021, the total ‘Outstanding Credit’ of SCBs in Maharashtra is Rs. 25.04 lakh crores. In fact, it is higher than the cumulative total of Central, Eastern & North-eastern regions. It accounts for 22% of the total ‘Outstanding Credit’ of SCBs by the end of March 2021. However, the growth of credit seems to have slowed down since 2018.
- The southern region accounts for the greatest ‘Outstanding Credit’ of SCBs in the country, with all the five states among the top-10 states. Of these, Tamil Nadu has the ‘Outstanding Credit’ of SCBs and ranks third in the country. Unlike in Maharashtra, the growth has not reduced in the case of Tamil Nadu, even during the pandemic years.
- Delhi on the other hand accounts for the second greatest amount of ‘Outstanding Credit’ of SCBs. Along with most of the other states like Gujarat, Karnataka, West Bengal, etc., the growth of credit seems to have slowed down since 2018.
- The new state of Telangana and Andhra Pradesh (erst-while and current) are among the other states with high ‘Outstanding Credit’ of SCBs.
Near 9-fold increase in the ‘Outstanding Credit’ of SCBs Agri loans in Tamil Nadu
By the end of 2020-21, Tamil Nadu accounted for the greatest amount of ‘Outstanding Credit’ of SCBs in the agriculture sector. Out of the total Rs.15.18 lakh crores of ‘Outstanding Credit’ of the SCBs in agriculture, Tamil Nadu accounted for Rs. 2.23 lakh crores of ‘Outstanding Credit’ in agriculture by the end of 2020-21.
By the end of March 2007, the ‘Outstanding Credit’ of SCBs in Tamil Nadu pertaining to Agriculture was Rs. 23 thousand crores, which increased almost nine-fold by the end of March 2021. After a slower growth period between 2015-17, ‘Outstanding Credit’ increased significantly in the last four years.
Among the other large states,
- Uttar Pradesh and Andhra Pradesh have a high ‘Outstanding Credit’ of SCBs in agriculture after Tamil Nadu. Despite the bifurcation of the state in 2014, Andhra Pradesh has regained its position as one of the top states with the highest ‘Outstanding Credit’ of SCBs in agriculture.
- Maharashtra, Punjab, and Delhi are the exceptions in terms of consistent growth of ‘Outstanding Credit’ as the amount wavered over the years.
- The slow growth in the overall ‘Outstanding Credit’ of SCBs in Maharashtra, as highlighted earlier can be attributed to the fall in the agriculture credit.
Significant fall in ‘Outstanding Credit’ of SCBs to Industry across major states
Maharashtra traditionally accounts for the greatest amount of ‘Outstanding Credit’ of SCBs in the industries sector. However, there is a significant fall in the amount of ‘Outstanding Credit’ by the end of March 2021. By the end of March 2021, the ‘Outstanding Credit’ of SCBs in Maharashtra to the Industries sector was Rs. 8.03 lakh crores, down from Rs. 8.84 lakh crores a year ago. This is a fall of almost 10%.
The same is the trend in the case of Delhi, Tamil Nadu & Telangana which are among the Top-5 states in terms of credit to Industry. Gujarat is the only exception among large states where the ‘Outstanding Credit’ increased by the end of March 2021.
The impact of COVID-19 on industrial activity is clearly visible in the reduction in ‘Outstanding Credit’ of SCBs in the industries sector. In other words, the credit to industries has significantly reduced in 2020-21.
While the government has announced measures to boost credit to the industry, the results were not seen in 2020-21. It remains to be seen if the story in 2021-22 would be different.
While COVID-19 could be the reason for the reduction by the end of March 2021, the ‘Outstanding Credit’ was reduced in major states like Maharashtra even in 2018, on the back of economic slowdown. The same is true for Delhi, Karnataka, Telangana, West Bengal, etc. COVID-19 seems to have worsened the situation in all these states.
The common theme across sectors is the reduction in ‘Outstanding Credit’ of SCBs in major states, clearly outlining the impact of COVID-19. The region-wise differences are also stark that have not changed significantly over the years.
In the next story, we would look at the trends in personal loans, which as highlighted earlier has witnessed a consistent increase in ‘Outstanding Credit’ over the years, especially between 2016 & 2021. We would also explore the ‘Outstanding Credit’ of Regional Rural Banks.
Featured Image: ‘Outstanding Credit’ of Scheduled Commercial Banks
