Bank credit to industry in April increases fastest in 8 years

Bank credit to industry grew at its fastest pace in eight years in April 2022, sectoral data released by the Reserve Bank of India (RBI) showed on Tuesday. The value of loans deployed in the industrial sector – including large, medium, small and micro-industry – increased 8.1% year-on-year (year-on-year) to $31.52 trillion as of April 22.

Mid-sized business credit grew at the fastest pace of 53.5% year-on-year, while micro and small business loans grew 29%. Growth in the large corporate segment was less than 1.6%. Over the past two years, banks have increased their exposure to small and medium-sized businesses while implementing the government’s Emergency Line of Credit Guarantee (ECLGS) scheme, aimed at supporting small businesses during the pandemic.

Lately, banks have become aggressive in the MSME segment, hoping to take advantage of the recovery seen across all sectors. Earlier this month, State Bank of India (SBI) Chairman Dinesh Khara told investors that the bank expects to see stronger growth in the SME segment over the coming quarters. “We have structurally strengthened our delivery process in SMEs over the past year, so that should help,” Khara said, adding that the lender continues to improve its processes. “So that should help us see better numbers in SMEs.”

ICICI Bank has also focused on the small business segment. In April, the private lender launched a digital platform aimed at offering end-to-end business solutions to its SME customers, similar to what it offers to enterprises.

Rakesh Jha, chief financial officer of ICICI Bank, told analysts after the bank’s fourth quarter FY22 results that the bank was focused on all aspects of its SME clients’ business. “So it’s not just lending but also floating income on the current account side, forex and trading and all the other income we get from clients,” Jha said. The bank’s strong growth in the segment is the result of the investments it has made in technology to serve customers in this segment, he added.

Growth in the corporate segment also improved for most banks, with commodity price inflation and an improvement in consumption fueling loan demand. SBI’s business portfolio grew 6.35% year-on-year in the quarter ended March, and the bank attributed it to good demand in the infrastructure segment.
However, a large portion of wholesale lending in the banking sector remains tied to working capital and demand driven by capital spending has yet to take hold.

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