Chennai: It is the non-performing loans built by government banks that has impeded lending to industries and not the high interest rates charged by the bankers, marketing research and analysis consultancy Frost & Sullivan said on Wednesday.
In a statement, Frost & Sullivan said the steady fall in non-food credit from 20.7 per cent in fiscal year (FY) 11 to 9.1 per cent in FY16 and a still-lower 8.3 per cent till July of FY17 is indicative of a disparity in lending to different sectors.
"The credit to agriculture bottomed out to 7.9 per cent in FY13 but recovered to 15.3 per cent in FY16, which is the same level as in FY11. Similarly, the non-food credit to services bottomed out in FY15 at 5.7 per cent and rebounded to 9.1 per cent in FY16 and has already touched 10.8 per cent for this fiscal," the statement said.
"In contrast, non-food credit to industry, which started at an impressive 22.4 per cent in FY11, progressively declined to 2.7 per cent in FY16 and a negligible 0.6 per cent so far in FY17, dampening the overall credit growth score.
"A closer analysis of the non-food credit landscape reveals that high interest rates have often been wrongly blamed for the slowdown in bank lending, putting the real issue in the shade," remarked Innovation and Knowledge Center Economic Research Manager Aparajita Basak.
"Frost iamp; Sullivan's analysis reveals that the accumulation of stressed assets within the banking sector, especially with the public sector banks, is a much more plausible explanation for the weakening credit growth in the country," she added.
The interest rate theory is easily debunked by the rising lending to industry by the private sector banks, despite the borrowing rates of these banks being greater than their public sector counterparts.
Similarly, personal loans from the public sector are increasing even as those from the private sector banks are plateauing or falling.
Evidently, the public sector banks are limiting their exposure to industry due to the past performance of high credit exposure areas, Frost & Sullivan said.
A slew of measures rolled out by India's central bank since 2014 aimed at revitalising stressed assets have finally begun to bear fruit. In FY16 alone, six companies with an aggregate debt of Rs 2,613 crore succeeded in exiting corporate debt restructurings, which rose to eight firms exiting with Rs 6,000 crore debt in June 2016, the statement said.
"There need to be more such initiatives with clear short-term and long-term objectives," noted Basak.
"Additionally, engaging private equity firms and enabling distressed debt funds will help speed up the cleaning of the banking sector and aid credit growth in the country," she added.