Infrastructure leads industrial credit slowdown

Following up from yesterday’s post, we explore the nitty gritties of the industrial credit slowdown. This is important for two reasons, one, as mentioned before, overall credit growth is being dragged down largely by the decline in industrial credit. While other credit segments have also witnessed a softening in growth, industry has seen a reversal. It is no wonder then, that credit offtake ex-industry is still witnessing a double digit growth of almost 11.5% while total credit offtake grew by 5% in January 2017. Two, industry accounts for the largest share of total credit of 35%, which means that overall credit is most sensitive to changes in industrial credit patterns. 

Drilling down to industry sub-segments reveals that the largest component – infrastructure – leads the overall decline in industrial credit. Accounting for a share of almost 35% in industry credit, this segment has seen a decline of 8.7% in January 2017. All in all, industrial segments with a 66.4% share in total industry credit have shown a decline during the month. This includes segments like textiles, engineering, chemicals, food processing among others. The sharpest decline has been witnessed in the food processing segment, followed by mining and quarrying and the glass industry. 

Of the 33.6% of total industrial credit, which has seen an increase, the notable segments are metals, construction, automotive, cement and energy. Note that the pickup in credit to segments like construction and cement is particularly interesting since these segments are most hit by the demonetisation drive, and we could have seen more medium term impact here. In fact, construction has seen the fastest growth in industrial credit of 8.2%, followed by automotives at 4.6%. Nevertheless, neither the relatively muted increases in these segments, nor their weight in total industrial credit has been enough to balance the drag from the affected industries.