Small loans made up 60% of total loans of banks in 2022

1 Nov 2022 , 09:30 AM

For commercial banks and the foundation of their operation, little is now attractive. According to RBI deputy governor Michael Patra, the proportion of smaller loans–up to Rs10 crore–in total loans climbed from 45% in 2014 to 60% in 2022.

Patra emphasized that the patterns of financial intermediation are changing while capturing the evolution of the nation’s financial landscape over the previous 50 years. 

Individual borrowings by consumers currently make up over 40% of the retail market, up from less than 10% in 2000. In his speech at the central bank’s internal conference on the completion of the 50 years of “Basis Statistical Returns (BSR),” one of its main data disseminating platforms, Patra said that this had led to a “unique phenomenon” where the share of smaller loans, of up to Rs10 crore, in total loans, increased to 60% in 2022 from 45% in 2014.

Another noteworthy aspect is the diminished significance of term lending banks and the rise of corporate treasuries, which have provided large companies with new options for short-term financing. Large companies’ reliance on banks for long-term financing has increased as a result, and the share of working capital in total loans has gradually decreased.

Term loans now make up almost 65% of banks’ total loan volume, extending their asset portfolios. According to Patra, “This transition has left a trail of concomitant changes in assessment, risk management, and loan pricing.”

The BSR is regularly updated to reflect fundamental changes in the banking sector and the economy, and it works effectively as a guide for central bankers whose decisions are becoming more and more data-driven.

He emphasized the whole range of topics the BSR covers that could be useful to policymakers. In contrast to the forty thousand citizens per branch ratio in 1972, there is now one commercial bank branch for every nine thousand residents.

Over 1.75 lakh ATMs are maintained by commercial banks, making up about 2.25 lakh client service locations. Cooperative banks also have a sizable branch and ATM network. Additionally, more than 9 lakh fixed point business correspondents (BCs) practically deliver banking services to customers’ doorsteps. Digital banking is now commonplace.

The banking network’s breadth and depth have increased the economy’s ability to mobilise financial resources. There are now more than 1,600 deposit accounts per 1,000 people, up from 43 in 1972.

Sixty-three percent of all bank deposits are currently made by households. The increase in the per capita bank deposit to income ratio from 15.8% to 71.20% and the increase in the per capita credit to income ratio from 12.2% to 51.30% between 1972 and 2022 both show this.

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