Bank credit trails services boom

The services sector may have displaced manufacturing as the main growth driver of the Indian economy well over two decades ago, but sectoral flow of bank credit fails to capture this structural shift.

Even as the services sector contributes around 67 per cent of our economy currently, data from the 47 major banks tabulated till end-March 2012 shows that the services sector received only 24 per cent (or Rs 10.17 trillion) of bank credit. Of the rest, industries received the biggest chunk at 46 per cent (Rs 19.67 trillion), even as the agriculture sector got 12 per cent (Rs 5.23 trillion) while personal loans accounted for 18 per cent (Rs 7.87 trillion).

This highlights the somewhat lopsided flow of credit to the service sectors, prompting the Reserve Bank of India to now lay fresh emphasis on the need for banks to go into the interiors — to nondescript towns and cities — and expand credit linkage in those areas. The added incentive being that providing loans to these segments, particularly for productive purposes, could also help in addressing the issue of retail inflation.

Since the late 1980s, India's growth has been driven increasingly by the services sector. In fact, the growth rates of almost all the components of the services sector picked up during the late 1980s and increased significantly during the high-growth period spanning 2005-08.

The composition of the services sector shows that while 'trade' continues to remain the predominant sub-sector, with a share of around 24 per cent, the shares of both 'banking and insurance' and 'communications' have registered sharp increases over the years. The shares of 'real estate, ownership of dwellings and business services', which includes IT services and 'construction', have also remained high, even though these sub-sectors have seen some decline in the post-crisis period.

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