Money raised from capital markets more important than banks: Economic Survey

In the fiscal year 2021-2022, the risk capital (i.e. money raised from capital markets) has so far been more important than the banks in providing finance to the revival of the Indian economy, according to the Economic Survey 2021-22 tabled in the parliament on Monday. 

"The credit growth had been declining since 2019. The credit growth was 5.3 per cent at beginning of April 2021 and started to increase since then, but was still modest and stood at 7.3 per cent as on 17 December 2021. However, the credit growth has picked up sharply in December to 9.2 per cent as on 31st December 2021," the Economic Survey stated. 

Non-food bank credit growth that remained muted during much of the pandemic period and stayed at sub-6 per cent through Q1 of 2021-22, has gradually improved and stood at 9.3 per cent as on 31st December 2021, as against 6.6 per cent a year ago, the survey noted.

"This growth was driven by personal loans and agriculture sector. Deceleration in credit growth in the services sector continued though credit to industry showed signs of improvement," the report added. 

To be sure, the Reserve Bank of India (RBI) has reduced the repo rate by 250 basis points since February 2019. The transmission has been slightly higher in public sector banks than private sector banks in the overall current monetary easing cycle, though it was higher for private banks in April-November 2021, the survey highlithed.

Moreover, services sector credit growth, however, is yet to recover. The subdued credit growth in the sector was due to sluggish growth in almost all segments. The growth in bank credit to NBFCs was 5.2 per cent in November 2021. In the current financial year, NBFCs directly raised finance from money and debt markets given the easy financial conditions. The bank credit growth to commercial real estate sector was 0.4 per cent in November 2021.

Growth in personal loans improved to double digits at 11.6 per cent in November 2021 as compared with 9.2 per cent in the previous year. Housing loans, the largest constituent of personal loans, registered growth of 8 per cent in November 2021. The growth of vehicle loans, the second largest constituent of personal loans improved to 7.7 per cent in November 2021 from 6.9 per cent in November 2020, the survey further highlighted.