Increased credit disbursement isn’t always good news, just ask households and MSMEs

Shamolie Oberoi   /    Content Marketing Specialist    /    2022-04-05


In a recent written response to the Rajya Sabha, Finance Minister Nirmala Sitharaman claimed that the country’s ‘sharp economic recovery’ post COVID coupled with budget initiatives will sustain growth momentum in years to come.

One can’t blame her for being optimistic. India’s just about out of the woods when it comes to the pandemic (unless of course, we’re on the brink of a fourth wave), and it’s natural to look ahead with a healthy dose of positivity.

Besides, the data released by RBI says that non-food bank credit grew 8.3% year on year in January 2022 as compared to 5.9% growth registered last year. Certainly, the headline number contributes to the overall optimism. 

However, like all data, the headline number hides more than it reveals. Let’s dig deeper and see if bank credit data can provide us with some clues about the state of the economy. 

Average Indians continue to struggle

It’s no secret that the common man suffered most during the pandemic. Job losses, salary cuts, and higher healthcare spending meant that many Indians were in the worst financial shape of their lives. Loans against gold went up, defaults increased, and discretionary spending reduced as people sought to preserve money rather than spend it. .

Sure, the numbers now show some improvement. For instance, the growth rate of loans against gold has come down from 65% to 35% in 2021-22. But that’s still an overall increase of a stunning 119% since 2020.

Credit card outstanding too has grown by close to 17% since then - clearly, the economic after effects of the pandemic continue to linger.

In addition, while travel restrictions have been lifted, education loans don’t seem to have recovered - which perhaps points to borrowers prioritizing loans for more pressing needs and reduced affordability of higher education even as the uncertainty of the pandemic continues.

Services show signs of recovery

Credit growth to the service sector contracted to 7.3% as opposed to 8.1% a year ago. Nevertheless, the numbers have shown a healthy increase from 2020. When it comes to one of the worst COVID-affected industries, i.e tourism, credit has grown by 19%. 

But cautious optimism is the need of the hour, since the growth in these loans could mean the industry is still recovering from pandemic aftershocks. In fact, reports say that tourism in India will not go back to pre-pandemic levels till at least 2026.

Credit  growth to commercial real estate has seen a slight dip but overall growth since 2020 is up, while credit to the transport industry is on the uptick. When it comes to retail trade, credit growth has touched close to 21% since the pandemic began. While signs look good for the sector, we can only hope that a fourth wave doesn’t derail its progress.

Industry still in choppy waters

Micro and small enterprises bore the brunt of several lockdowns between 2020-2021. They suffered from inventory shortages, cancelled orders, supply chain disruptions, and delayed payments.

However, they suffered from several challenges even prior to COVID - the major one being lack of credit. And numbers show this continues to be a roadblock. Credit growth with regard to micro and small enterprises has come down from 6.8% in 2020-21 to 4.8% in 2021-22. On the other hand, credit growth to medium enterprises has seen an overall increase of 102% since 2020.

Clearly, the small fish continue to suffer.


While the numbers look promising overall, a little digging shows us where the economy is still struggling - so it’s too early to be claiming a robust recovery. The focus must remain on addressing the financial challenges of the common Indian and supporting the small businesses that are the lifeblood of the Indian economy.  FinTech plays a crucial role in this context, and in partnership with banks, are working to deliver last mile credit where it's needed the most. Continuing collaboration will be key to ensuring access and fostering inclusion in our growing economy.