Bank Credit Evolution: A Decade of Change and Implications.

  Oct 12, 2023

Shift in Bank Credit Composition: A Decade of Change and Its Implications

Current Composition of Bank Credit:

Personal loans: 32.1%

Services: 28.4%

Industry: 26.2%

Agriculture: 13.3%

Past Composition (March 2013):

Industry: 46%

Services: 24%

Retail: 18%

Agriculture: 12%

Shift in Composition:
Over the last decade, there has been a significant shift from industry to services and retail loans.

Agriculture Loans: Modest growth due to government-set yearly targets.

Alternative Funding for Industry: Large corporates are opting for bonds and external commercial borrowings.

Outlook for FY24: Credit growth is estimated to be in the range of 13–13.5%.


Shift in Focus: Banks have shifted their focus towards retail and services loans, including housing, vehicle, and credit card loans. This is partly because credit-scoring models make it easier to finance these sectors.

NBFC and Trade Loans: Non-banking financial companies and trade sectors have also tapped into bank loans, contributing to the growth in the services sector.


The decline in credit to the industry is worrying because, unlike manufacturing credit, services credit does not result in capital formation.

Retail credit, except for housing and vehicles, does not contribute to capital formation or generate recurring revenues.


In downturns, bad loans in services and unsecured portfolios could become problematic as they are not backed by tangible assets.

Past failures of NBFCs and microfinance companies serve as a cautionary tale.

Positive Outlook:

The outlook remains positive due to economic expansion and a push for retail credit, supported by improving digitisation.

The personal loan segment is expected to perform well in FY24 compared to industry and service segments.

The shift in the composition of credit represents a change in economic focus but also brings along its own set of challenges and risks.


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