Growth in bank lending to services slid to 6.5% year-on-year (y-o-y) in October, from over 27% a year ago, on the back of drastically-slower growth in lending to non-banking finance companies (NBFCs). Loans to non-bank lenders grew a mere 26.8% y-o-y for the month under review, against 55.6% in October 2018, showed data released by the Reserve Bank of India (RBI) on Friday.
The slide in services growth first became apparent in September, when growth in bank credit to the services sector slowed to 7.3% y-o-y from 24% a year ago. October was the second consecutive month of services-loan growth lagging overall non-food credit growth, which grew 8.3% y-o-y in October 2019.
Outstanding bank loans to services firms stood at Rs 23.52 lakh crore on October 25, up from Rs 22.08 lakh crore on October 26, 2018.
The slowdown in bank lending to services coincides with the completion of a year since the liquidity crisis in the NBFC segment first broke. Bankers say for much of 2019, lending to NBFCs was being supported by the utilisation of existing lines of credit. Soon after the IL&FS crisis broke in September 2018, banks significantly slowed down lending to NBFCs in an environment of heightened risk aversion.
The manufacturing industry also fared poorly in terms of access to bank credit, with lending in this segment growing 3.4% y-o-y in October, down from 3.7% a year ago.
For the last few years, services companies had been bolstering wholesale credit numbers for banks, but the ongoing slowdown in the economy might have caught up with the sector, the latest data show.
Banks have turned extremely cautious about lending to companies and that is clear from the growth in their wholesale portfolios. In the quarter ended September, State Bank of India (SBI)’s corporate loans grew just 2.78% y-o-y to Rs 7.66 lakh crore. Chairman Rajnish Kumar said after SBI’s Q2 results that the loan mix at the bank had shifted, with 60% of the loan book now comprising retail loans. “As the utilisation in working capital limits improves, the performance on the advances front will also improve. The ratio could then again change to 58:42,” he observed.
Analysts say sectoral exposure norms for banks are also making it harder for NBFCs to raise money. In a recent report, Credit Suisse wrote, “With most PSU banks’ NBFC exposure now at 10-15% of their loan book, headroom for incremental funding is low.