• Puranika Narayana Bhatta

Pandemic Effect: Credit Growth Becomes More Distributed

Financial year 2020-21 (FY21: April 1st 2020 to March 31st 2021) has been a challenge for most individuals and businesses. Headline GDP number shrank by 7.3% in India, due the severe impact of the pandemic.


An important indicator of economic health is credit growth. The Reserve Bank of India (RBI) reported a growth of 5.6% in credit provided by scheduled commercial bank in FY21. The stock of credit grew to 110 lakh crores from 104.5 lakh crores, in this period. During this time, deposit growth was healthier at 12.3% and the stock of deposits with scheduled commercial banks grew to 154 lakh crores from 137.5 lakh crores. So, the Credit to Deposit (C / D) ratio worsened from 0.76 to 0.71 in the last financial year. Here, we will examine credit growth.


While credit growth was quite low in FY21, the credit growth across the vast nation provides a very fascinating picture.



Credit Growth Across States


The map of India with annual credit growth across states and Union Territories (UTs), paints a remarkable picture.

  • Three states / UTs (Maharashtra, Delhi & West Bengal) accounting for 42% of the credit, grew by a total of 0.7% in FY21.

  • Credit in Delhi (DL), with a 12% share in credit, 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 (Andhra Pradesh, Uttar Pradesh and Telangana) stand out with double digit growth.

  • Credit in Andhra Pradesh (AP) grew by 16%.

  • Economically smaller states and UTs reported uniformly high credit growth, as can be seen from the map.

  • Newly formed UTs of J&K and Ladakh, both had credit growth of 18% and 20%.

The map clearly points to a significant deviation in growth rates of credit across the country.



Contribution to Credit Growth

To understand impact of this geographical spread of growth rates on overall credit, it is critical to look at the contribution of the regions to the total growth in credit in this period.

  • Tamil Nadu, with a 9.4% credit share, contributed 12% to the country’s growth, marginally higher than Maharashtra.

  • AP with a 4.3% credit share, contributed 11% to the growth.

  • Maharashtra with a credit share of 26%, contributed to 12% of the credit.





If one examines data across a few years, couple of regional shifts can be noticed:

  • Credit in India’s has growth at a Compounded Annual Growth Rate (CAGR) of 8.6% in 4 years.

  • In this period, CAGR of credit growth in Maharashtra (MH) is 5.9% and the states share in credit has reduced from 29% to 26%.

  • West Bengal (WB) has seen a CAGR of credit at 0.9% in the last 4 years, and its share in credit has dropped from 5% to 3.8%.

  • Three states (MH, DL, WB) had a share of credit of 46%, which has dropped to 42% in 4 years, as credit in all 3 states has been below the national average.

  • UP credit has seen a CAGR of 10.6% and its share of credit has inched up from 4.4% to 4.8%.

Clearly, growth dynamics across the country are changing across the country. One wonders if the picture is similarly changing within a state.


Credit Growth Within States


Credit in the state grew by 11.7% in FY21. 4 year credit CAGR was 10.6%, indicating an acceleration in credit growth. Interestingly, while C/D ratio of India dropped from 0.74 to 0.71 in 4 years, UP’s C/D ratio went up from 0.39 to 0.41. So, opportunities for credit absorption have increased in this time.

A picture says a thousand words. Map of credit growth in FY21 in UP is a sea of green, with more pronounced growth in the central (Awadh region) and eastern (Poorvanchal) parts of the state.

  • 4 districts closest to Delhi (Gautam Buddha Nagar, Ghaziabad, Agra & Meerut), with a state credit share of 23%, contributed only 15% to the state credit growth.

  • The state capital of Lucknow saw credit growth of 28% in credit, with incremental credit of 13,300 crores.

  • To put this in context, this is the same as the increase across the 2 districts comprising Mumbai and marginally higher than the increase in Bengaluru Urban district. Those districts have orders of magnitude higher amount of credit stock than Lucknow.

  • Credit growth has been consistently high for many districts in Awadh and Poorvanchal regions, for the last 4 years.

  • Jaunpur, Varanasi, Ghazipur, Prayagraj, Chandauli, Kaushambi, Rae Bareli, Ayodhya, Pratapgarh, Ambedkar Nagar – have all seen credit CAGR of 15%+ in this time.

  • Lucknow credit CAGR was 14% in the last 4 years.

  • Districts nearest to Delhi have grown at the pace of the state or lower.

  • Gautam Buddha Nagar, Ghaziabad, Meerut have seen a credit CAGR of 8-11%.


Analysis Summary

  • Credit growth is a good indicator of economic activity.

  • Different states have varying degrees of economic activity, reflected in credit data.

  • Two key trends seem to be pushing credit growth in FY21:

  • infrastructure push

  • worker migration

Trend of credit growth moving to newer regions and centres is quite clear. It is quite likely that the pandemic driven changes to migration accentuated this trend. As newer centres of growth emerge quite quickly, enterprises need to be alert to these and plan their distribution networks to cater to new customers.


View From The Practitioner


Sanjeev Moghe is the head of credit cards and payment solutions at one of India’s largest banks, Axis Bank. It has millions of customers and merchants spread across the country. Geographical distribution of network and transactions is extremely crucial for Sanjeev.

  • Understanding regional shifts which help identify new hot spots of growth.

  • Informed decisions on planning distribution network.

  • Growth projects can be planned at local level, keeping in mind local market share.

To use a phrase of the great Indian poet, Bhavabhuti (भवभूति), (from a slightly different context!), “विपुला च पृथिवी”(the world is vast). So, financial companies need to start spreading their network across the nation, as growth becomes more distributed.


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