A decline in bank credit to businesses in the first quarter is not unusual as corporates repay some of the high borrowings they undertake at the end of the previous fiscal. The overall drop in non-food credit in April and May 2020 at Rs 1.82 lakh crore is identical to the drop in the previous year. What makes the current fiscal unusual is the secular drop in borrowing by individuals across all categories.
Typically, home loans and credit card outstanding display growth throughout the year. However, the first two months of this fiscal saw the credit card outstanding shrink by Rs 15,207 crore to below the Rs 1-lakh-crore level to Rs 92,887 crore. Last year, credit card debt during this period had grown by Rs 5,381 crore. Home loan outstanding fell by Rs 9,817 crore in April and May to Rs 13.3 lakh crore. Last year, the same period had seen home loans grow by Rs 16,815 crore.
According to lenders, this is because repayments continued, while purchase of residential property came to a standstill due to the lockdown. Similarly, the drop in credit card outstanding was because of the absence of consumption as malls and shops remained shut.
According to data released by the RBI on sectoral deployment of bank credit, bank credit to industry between March 29, 2019 and May 22, 2020 declined by Rs 43,544 crore to Rs 28.6 lakh crore. Last year, the same period had seen credit to industry drop by Rs 71,739 crore. The fall was less this year because the March-end surge in lending (which gets repaid in the first quarter) did not take place this year amid the lockdown.
There are also signs that banks had turned risk-averse to micro and small businesses in the wake of the Covid-19 pandemic. Loans to the micro and small segment fell by Rs 28,876 crore in April-May 2020 as against a decline of Rs 10,197 crore in the previous year. Loans to medium-sized industry fell by Rs 5,751 crore as against a decline of Rs 996 crore in the previous year.