Credit growth down in metros: RBI

OVERALL GROWTH OF CREDIT SLOWED TO 6.28% IN FY20 FROM 12.9% A YEAR AGO

MUMBAI: The plunge in credit growth in the last fiscal year was cushioned significantly by India’s countryside, though the economic engines in towns and cities must roar back to life for a sustainable return of loan demand.

While overall credit growth in FY20 slowed to 6.28% from 12.9% in FY19, in the same period, rural credit growth came in at 10.9%, against 15.2% in FY19, according to disaggregated data released by the Reserve Bank of India. In contrast, credit growth in metropolitan areas slowed to 4.92% from 12.83% the previous year, down 790 basis points. One basis point is one-hundredth of a percentage point. RBI classifies bank centres with less than 10,000 people as rural; 10,000 to less than 100,000 as semi-urban; 100,000 and above to less than 1 million as urban and above 1 million as metropolitan areas. Among these categories, rural was the only one to post a 10%-plus credit growth in FY20. The worst figures came from the metros, where banks have 65% of all outstanding bank loans.

“In the long run, what we have seen globally as well as in India is urbanisation has been the force of growth for most investments. That underlying theme does not change in the long run although, in near term, rural areas will be the point of rescuing the economy because, in terms of population, these account for 65% of our total population and 45% of the gross domestic product,” said Sameer Narang, chief economist, Bank of Baroda.

The reasons why metro branches have seen slower growth is because large-ticket loans, typically disbursed by corporate branches in metros, slowed last year, said Sanjay Agarwal, senior director, Care Ratings. Banking industry experts said the rural sector’s resilience may continue in the current fiscal year as well.