Credit offtake marginally improves in April 2017 after bottoming out in February

Brief: Credit Offtake marginally improves in April 2017 after bottoming out in February, in line with SMERA expectation; Overall FY17 Offtake has breached the 9% level; Services Sectors showcased a surprising growth of 19.5%; MSME lending also showed a strong expansion of near 7% along with other PSL sectors

Impact: Positive

Non-food credit offtake has recorded a growth of 5.7% in April, 2017. This growth rate indicates a marginal improvement in the offtake for most sectors. The offtake growth had dropped to a many year low 3.3% in February, 2017. This development is a positive start to FY18 and it is expected that the momentum will not abate from here on. In terms of the overall corporate performance as measured by the RBI through its NGNF and NGNBF&I data for FY16, it is evident that companies have slowed their external demand for capital. This is apparent from de-growth recorded in moniterables such as ‘share of bank borrowings in total borrowings’ and lowering of ‘Debt to Equity’ ratio (for listed companies). Most of the capital requirement is now increasingly met through internal accruals; this trend is highly visible among the most leveraged companies.

In terms of the overall year growth rate as on March 31st, 2017, the offtake recorded a sharp growth of over 9%. However, SMERA believes that this bump in deployment might be attributed to the banking sector’s year end closing of Priority Sector Lending (PSL) targets. Offtake in April, therefore gives a more holistic understanding of the situation. Even though PSL and Services have propped up deployment, SMERA believes that credit growth will continue to languish until the outlook of the industrial sector does not improve. The industrial sector that accounts for 39% of overall offtake has contracted by (-) 1.9% in March, 2017 albeit improving from the previous year’s (-) 5.2% contraction. However, we continue to expect things to improve here given the continued strong performance of personal loans (expanding by 16.7%), especially for Consumer Durables. MSME lending improved substantially and has bettered its performance, compared to same time last year; a strong performance of NBFCs does look positive in this regard. The effects of a strong monsoon and favorable MSPs have lingered on and translated into a strong demand for agriculture credit; this brings the overall agro based industries in a sweet spot as the industry’s profitability has been improving as well – aiding possibilities of capacity expansions.

Coming back to the vulnerable industries segment, primary contractions have been recorded by Medium and Large Industries, recording (-) 8.7% and (-) 1.8% respectively. With improving demand conditions and input prices expected to remain low, we reckon that there may be a turnaround in FY18. The ongoing developments in the banking regulations will definitely play a bigger role.





Non-food Credit








Industry (MSML)








Personal Loans




Priority Sector




Source: RBI; SMERA Research