However, manufacturing sector continues to suffer from slow demand. However, manufacturing sector continues to suffer from slow demand.

The overall credit outstanding of scheduled commercial banks on a year-on-year (YoY) basis jumped to over 4-year high of 12.2 per cent in August, 2018, even as the manufacturing sector continues to suffer from slow demand for bank credit. The rise was primarily led by demand from the services sector, personal loans and uptick in credit demand from the infrastructure sector.

The uptick in credit demand has been visible since the beginning of November, 2017, when it clawed back to over 8 per cent for the first time since demonetisation in 2016. It has crossed the 12 per cent mark for the first time in over four years in August. The last time it stood above the 12 per cent mark was in July 2014 when the overall credit outstanding for banks grew to 12.6 per cent.

The biggest contributor to the high credit demand from scheduled commercial banks in August was the services sector which expanded by 26.7 per cent – the highest in at least five years. The growth for the personal loan segment stood at 18.2 per cent.

Even the infrastructure sector witnessed expansion in credit demands from banks in June, 2018. The sector had seen contraction in YoY credit growth from April, 2016 to May, 2018. In August, the credit outstanding from banks to the sector rose by 4.3 per cent. The credit demand for the industrial sector stood at an eight-month high of 1.9 per cent.

While services sector and the overall consumption is driving the credit demand from banks, the industrial sector and the infrastructure segment are much below their potential. A low growth in credit demand for the industrial sector indicates weak outlook of India Inc.

Experts say that a large section of India’s manufacturing continues to suffer from unutilised capacities and thus the companies do not see a reason for setting up additional capacities.

According to Reserve Bank of India’s recently released results of the Order Books, Inventories and Capacity Utilisation Survey (OBICUS) for the April-June quarter covering 994 manufacturing companies, capacity utilisation recorded a seasonal decline at an aggregate level and stood at 73.8 per cent in Q1 FY19, co-moving with the de-trended index of industrial production.

While the capacity utilisation in quarter ended June 2018 was higher than 71.2 per cent, seen in June 2017, it slipped lower than 74.1 per cent and 75.2 per cent registered in the quarter ended December, 2017 and March, 2018, respectively.

The RBI survey however, shows that the average new order book registered a strong growth of 43.1 per cent in quarter ended June, 2018 against 15.8 per cent growth in the quarter ended June, 2017.

On the infrastructure front, while the government continues to lead the spending, the private sector has not come in the way it was expected. Now, with the recent episode of default by major infrastructure player – IL&FS – on its outstanding dues, there are fears in the market that private sector participation will further take a back seat.

“The IL&FS issue will create an environment where funding will become an issue for the kind of projects it supported… We are struggling with IL&FS, which was the biggest supporter of public private partnership. So, unless the PPP model gets the confidence, private investment in infrastructure will remain an issue,” said Vipin Sondhi, MD and CEO of JCB India.

📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines

For all the latest Business News, download Indian Express App.