Pandemic Effect: Credit Growth Becomes More Distributed

Financial year 2020-21 has been a challenge for most individuals and businesses. Headline GDP shrank by 7.3% in India. The Reserve Bank of India reported growth of 5.6% in credit provided by scheduled commercial banks — the stock of credit grew to 110 lakh crores from 104.5 lakh crores.

Credit Growth Across States

Three states / UTs (Maharashtra, Delhi & West Bengal) accounting for 42% of the credit, grew by a total of just 0.7% in FY21. Credit in Delhi, with a 12% share, shrank by 3%. Credit in the remaining part of the country grew by 9.3%.

Among states with more than 4% credit share, 3 states stand out with double digit growth: Andhra Pradesh (16%), Uttar Pradesh, and Telangana.

Contribution to Credit Growth

Tamil Nadu, with a 9.4% credit share, contributed 12% to the country's growth — marginally higher than Maharashtra. Maharashtra, with a credit share of 26%, contributed to just 12% of the credit. Three states (MH, DL, WB) had a share of credit of 46%, which has dropped to 42% in 4 years.

Credit Growth Within State: Uttar Pradesh

Credit in UP grew by 11.7% in FY21 — a 4-year credit CAGR of 10.6%. The state capital Lucknow saw credit growth of 28%, with incremental credit of 13,300 crores. This is the same as the increase across the 2 districts comprising Mumbai.

Analysis Summary

Different states have varying degrees of economic activity, reflected in credit data. Two key trends are pushing credit growth in FY21: infrastructure push and worker migration. As newer centres of growth emerge, enterprises need to be alert to these and plan their distribution networks accordingly.

Sanjeev Moghe, head of credit cards and payment solutions at Axis Bank, emphasised: enterprises need to understand regional shifts to identify new hot spots of growth, make informed decisions on distribution network planning, and plan growth projects at local level keeping in mind local market share.