Industrial credit growth nears 20%, signals private capex revival; Shaktikanta Das urges banks to fund strategic sectors

Higher bank credit growth to the industrial sector could signal an early revival in India's private capital expenditure cycle, Shaktikanta Das, principal secretary to the Prime Minister and former Reserve Bank of India governor, said on Tuesday.

Speaking at the annual Business Standard BFSI Insights Summit, Das said bank credit to industry grew nearly 20% in July, reflecting the balance-sheet repair undertaken by corporate entities after the Covid-19 pandemic.

"This credit growth also provides an early indication of a revival in the private-corporate investment cycle, which is crucial for sustaining higher economic growth," Das said, according to PTI.

Private capital expenditure, or capex, refers to spending by companies to establish new plants, expand existing facilities or invest in productive assets. A sustained recovery in private investment is considered important for supporting economic growth.

Private capex has remained subdued for several years despite surveys indicating higher capacity utilisation, leaving the government to shoulder a significant share of the investment burden, PTI reported.

Das called on India's banking, financial services and insurance (BFSI) sector to play a larger role in financing infrastructure development and emerging manufacturing industries.

The sector must move beyond conventional corporate lending towards supporting long-term capital formation, he said. This would involve financing a significant share of the National Infrastructure Pipeline's requirements through structured lending consortiums and greater corporate bond market participation.

Das calls for lending to strategic sectors

Das also urged banks to direct financing towards strategic industries, including semiconductors, advanced electronics and defence manufacturing, as India seeks to strengthen its domestic production capabilities.

He said smaller banks and financial institutions should focus on meeting the financing requirements of individuals and small businesses in smaller cities, where their local presence gives them an advantage. Larger institutions, meanwhile, should concentrate on funding major infrastructure projects and manufacturing facilities, PTI reported.

Das said India would need financial institutions with greater scale, resilience and an international presence to compete with leading global banking entities as the country pursues its Viksit Bharat 2047 goal.

Das flags household debt, municipal financing needs

Amid concerns about rising household debt, Das called for closer monitoring of consumption-related borrowing by individuals.

He also highlighted the growing financing requirements of urban local bodies as urbanisation accelerates.

Municipal bond markets will need to play a larger role in funding civic infrastructure, as internal accruals and government transfers alone will not be sufficient to meet the requirements of urban local bodies, Das said, according to PTI.