Credit To Manufacturing MSMEs in October Reported a Pause in Oct 2020: RBI

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Bank credit to manufacturing sector has remained muted in the current financial year amid the pandemic, while few sectors, including construction and trade, have witnessed resilient flows.

According to the Financial Stability Report of the Reserve Bank of India for January, credit growth in the manufacturing sector in October 2020 contracted by 2 per cent, while that in construction witnessed a growth of 5.1 per cent and credit to trade, hotels and restaurants was up 13.9 per cent.

“An analysis of sectoral credit growth, specifically to those that are critical in terms of gross value added (GVA), shows resilient flows to sectors such as construction, trade and hospitality, while bank credit remained muted to the manufacturing sector,” the report said.

It said that the profile of wholesale credit in first half of 2020-21 and in the third quarter of 2020-21 (upto November) reflects a subdued credit situation across bank groups, pointing to risk aversion and muted demand weighing on the outlook.

With the onset of Covid-19, retail credit growth (y-o-y) has suffered, while wholesale credit growth has held up though at low levels.

“With stress tests pointing to a deterioration in asset quality of banks, early identification of impairment and aggressive capitalisation is imperative for supporting credit growth across various sectors alongside pre-emptive strategies for dealing with potential NPAs,” it said.

As per the report, the gross non-performing asset (GNPA) of scheduled commercial banks (SCB) are likely to increase to 13.5 per cent by September 2021 in the existing scenario.

In case of a severe stress, the ratio may go up to as high as 14.8 per cent, it said.

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SMEStreet Edit Desk is a small group of excited and motivated journalists and editors who are committed to building MSME ecosystem through valuable information and knowledge spread.

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