In percentage terms, the sharpest drop in outstanding loans was in the personal segment, with middle-class borrowing for consumption through credit card outstanding and advances against fixed deposits (FDs) and shares falling by over 10%. Most Indians in this period remained in their homes, unable to go out and spend or order anything online other than food and groceries. The personal loan segment saw outstanding advances decline by Rs 62,861 crore to Rs 24.9 lakh crore.
According to data released by the RBI, the total bank credit as on April 24 stood at Rs 91.5 lakh crore — a dip of 1.2% from Rs 92.6 lakh crore on March 27. Loans to micro and small enterprises in the priority sector shrunk 4.2% in four weeks to Rs 11 lakh crore from Rs 11.49 lakh crore. While the lockdown has clearly brought down demand, many private banks, which were active in the retail and personal loan segments, turned risk-averse by tightening credit standards and reducing exposure.
The Rs 11,116-crore drop in credit card outstanding is largely explained by the closure of all non-essential retail outlets, including online ones, during the lockdown. Credit card outstanding, which had crossed Rs 1.08 lakh crore in March 2020, has declined to Rs 96,978 crore in April. The drop in loan against shares and FDs also appears to be reflecting a decline in consumption. Loans against FDs fell 14% to Rs 60,975 crore while loans against shares dropped 10% to Rs 4,818 crore in April 2020.
The sectors which saw an expansion in bank credit included large industry, where banks lent an additional Rs 8,900 crore, retail trade where loans grew by nearly Rs 7,000 crore and, surprisingly, non-banking financial companies, where banks lent an additional Rs 5,000 crore. Loans to the services segment did reasonably better, shrinking only 0.8% to Rs 25.74 lakh crore from Rs 25.94 lakh crore a month earlier. In the services sector, transport operators were the biggest borrowers in April. Loans outstanding to this sector grew 3% to Rs 1.48 lakh crore. The demand for loans was the lowest in the wholesale trade segment, where outstanding advances fell by 5% to Rs 2.49 lakh crore.
To help banks overcome their risk aversion, the government has come out with a scheme to guarantee loans to businesses that have an outstanding credit limit of up to Rs 25 crore. This will include MSMEs and other small businesses. Many banks expect to grow their MSME books by nearly 20% on the back of this guarantee.