: Banks need a new playbook #IndiaNEWS #News By B Sambamurthy Real GDP hit a decadal high of 8. 2% during 2016-17. Since then, it has been on a downward slide and declined to about 4% during 2019-20.

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Banks need a new playbook #IndiaNEWS #News
By B Sambamurthy
Real GDP hit a decadal high of 8. 2% during 2016-17. Since then, it has been on a downward slide and declined to about 4% during 2019-20. Covid-19 inflicted significant damage to economic growth and growth hurtled to a negative 6. 5% in FY 2021.
Keeping the impact of Covid-19 aside, the deceleration of economic growth has been placed nearly at the doorsteps of low bank credit growth during the last few years. The government and the Reserve Bank of India (RBI) have been exhorting banks to step up lending to boost economic growth and legitimately so.
Decelerating Credit Growth & Economic Growth
Bank credit growth hit a decadal high of 14% during 2012-13 and has been slowing down since then, reaching a low of 5. 5% in 2020-21 triggering alarm bells in government corridors. There is both coincidence and correlation between credit growth and economic growth.
The government and the RBI have unleashed a series of measures, (still continuing) to prop up credit growth and thus economic growth. These measures include massive dollops of liquidity, liberal refinance lines, credit guarantee (up to 20%) for MSMEs and recapitalisation of PSU banks. Bank credit grew by about 8% during 2021-22.
A brief review of bank credit growth during 2021-22 reveals hits and misses
Personal Loans: Rs 35 lakh crore

The personal loans segment emerges as a big winner, continuing its faster growth over the last decade. With an outstanding level of Rs 35. 2 lakh crore (see table), it leaves behind credit to large industry (Rs 25. 70 lakh crore) by miles. It grew by over 12. 5% against large industry credit growth of 0. 5%. It takes away over 43% of incremental credit growth and together with NBFC, it sucks away 58%. This no doubt fulfils aspirations of larger sections of people to own automobile, house, TV, fridge and other consumer durables.
This growth has also pushed up consumption-led growth. But it is a moot point whether household debt-fuelled consumption is sustainable in the long run. Whether personal loans are a substitute for employment and avenues for earning living wages is another debatable issue.
It is a moot point whether household debt-fuelled consumption is sustainable in the long run; whether personal loans are substitute for employment and avenues for earning living wages is also debatable.  
Risk-adjusted returns are higher for lenders as compared with other sectors. It looks as though it is a win-win-win for personal loan borrowers, consumption-led economy and lenders. But this enthusiasm needs to be discounted if you go by the experience of other countries.
MSME: Manufacturing and Services: Rs 17. 1 lakh crore
This segment has also grown by 13.

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