The industries that draw the most gross bank credit in India

03 September 2018 4 min. read
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Ten industries make up 90% of the credit on offer for the industry division in India’s banking sector, according to a new report from global professional services firm PwC. The infrastructure industry leads the pack by a considerable distance, followed by the basic metal & metal products sector. 

Despite remaining amongst the countries less severely affected by the global financial crisis of a decade ago, the Indian banking sector has been navigating problems of its own over the last few years, characterised by major loan defaults and a consequently vast pool of non-performing assets (NPAs) across the sector.

Experts have suggested a number of causes for the problem, including faults in the criteria for credit assessments, and the poor selection of those borrowing the largest share of funds. Reports emerged last year, for instance, that just a dozen companies were responsible for 25% of India’s total NPAs.

Deployment of gross bank credit

Banks have subsequently had to hire consultants to initiate insolvency proceedings and retrieve what funds they can, prompting a number of senior leaders in the consulting industry to call for banking reforms. In its new report titled ‘Demystifying credit assessment in banks,’ PwC has shed some light on the sectors that receive the highest pool of credit.

The report reveals an overwhelming tendency towards non-food credit over food-credit. The total deployment of food-credit, for instance, amounted to Rs. 419 billion this year, which is not only a relatively low figure, but also represents a major decline since March last year, when the total deployment stood at Rs. 511 billion.

Non-food credit, on the other hand, represents a comparatively mammoth pool of resources. In March last year, the total deployment of non-food credit stood at nearly Rs 71 trillion, which has further increased over the last year to reach a total value of nearly 77,000 this year.

Gross bank credit in the non-food sector

Within the non-food credit segment, personal loans currently account for just over Rs 19 trillion, while the services sector accounts for Rs 20.5 trillion. Agriculture and allied activities receive the lowest share with Rs 10.3 trillion, while the industry sector is by far the largest recipient of credit, with nearly Rs 27 trillion.

Given that the industry sector draws the largest amount of credit, PwC zooms in to the gross bank credit deployment across the various segments to gain a better idea of where the challenges may lie, particularly as the ten biggest industries account for a staggering 90% of the credit on offer.

Significant disparities exist within the industry sector as well. The infrastructure segment, for instance, drew Rs 8.9 trillion of credit this year, which is miles ahead of the other sectors albeit a decline from just over Rs 9 trillion drawn last year. Basic metal & metal products is the second largest segment in these terms, having drawn Rs 4.1 trillion this year.

Gross bank credit across top industries

However, credit for the metals segment has also declined from over Rs. 2 trillion last year, unlike the third largest textiles segment, which increased from Rs. 1.9 trillion last year to surpass the Rs. 2 trillion mark this year. Other segments that drew large amounts of credit include chemicals & chemical products, food processing and engineering.

Reflecting on this scenario, the report emphasises the growing need to improve credit evaluation criteria. “Given the robust and resilient growth in the Indian economy over the years and a projected GDP of 7.4% for FY18–19, the finance requirements of various sectors will rise. The banking industry will now face the pressure of maintaining the net interest margin and profitability while carving higher provisions due to the pile-up of bad assets,” said the report.

“It is essential for banks and other financial institutions to conduct an extensive qualitative and quantitative creditworthiness assessment in order to strengthen and enhance their client base while building a strong framework for the financial system,” it added.