Analysts feel that despite of improvement in farm credit disbursement, Indian banks might struggle to meet their priority sector lending targets in the current financial year.
Credit growth remained very weak with the slowdown especially in industrial and services sector in October, 2012. However, the growth in personal loans segment was stable. Agriculture loan witnessed a very sharp increase this financial year.
For 12 months which ended on October, 2012, farm credit growth was 22.9% compared to 7.1% in the corresponding period last year. Growth in Industrial and services sector fell by 790 basis points and 630 basis points respectively in 2012.
Meeting the priority sector target will be a challenge for most of the banks as credit flow to small borrowers remained slow.
Mr. Anish Tawakley and Jatin Mamtani, analyst with Barclays said, "Despite strong agri growth, total priority sector credit growth (12%) lags overall system growth...Lending to smaller borrowers, across industry and services, has been weak. Consequently, banks will likely struggle to meet their priority sector targets. Overall, this data support our cautious view on Indian banks".
The growth in the industrial sector was concentrated on stressed sectors like road, textiles, gems and jewellery, metals, power and mining. The analyst said, "Banks appear to be curtailing credit growth among small and medium sized industries.