Bank credit growth slowed to 13.9 per cent in June 2024 compared to 16.3 per cent a year ago due to an unfavourable base effect even as the increase in risk-weights on unsecured consumer credit and bank credit to NBFCs in November 2023 continued to have an impact.
There has been a moderation in credit growth in the services and personal loans sectors, according to RBI data.
The aforementioned credit growth numbers exclude the impact of the merger of HDFC with HDFC Bank.
CARE Ratings attributed the slower pace of credit growth to a higher base effect and banks’ focus on restraining the credit-to-deposit (CD) ratio.
Concerns about excessive growth in unsecured retail loans and over-reliance of NBFCs on bank funding prompted the central bank to increase risk-weights on unsecured consumer credit and bank credit to NBFCs segments. This was done to pre-empt build-up of any potential risk in these segments.
Services & Personal Loans
Credit growth to the services sector moderated substantially to 15.1 per cent y-o-y in June 2024, down from 26.8 per cent a year ago, primarily driven down by lower credit growth in the ‘non-banking financial companies (NBFCs)’ and ‘trade’ segments, RBI said in its statement on sectoral deployment of credit.
Personal loan growth decreased to 16.6 per cent y-o-y in June 2024 compared to 21.3 per cent a year ago, largely due to moderation in growth recorded in ‘other personal loans’ and ‘advances against fixed deposits’. However, credit growth to ‘housing’, the largest constituent of the segment, accelerated.
Agriculture & Industry
Credit growth to agriculture and allied activities remained robust at 17.4 per cent y-o-y in June 2024, however, it was lower compared to 19.7 per cent a year ago.
Credit to industry grew at 7.7 per cent y-o-y in June 2024 compared to 7.4 per cent in June 2023.
Among major industries, y-o-y growth in credit to chemicals and chemical products, food processing and infrastructure was higher in June 2024, In contrast, credit growth to basic metal and metal products, petroleum, coal products and nuclear fuels and textiles moderated, RBI said.
Referring to the credit and deposit inflows over the past 3 months and 6 months, the CARE Ratings’ BFSI team comprising Sanjay Agarwal, Senior Director; Saurabh Bhalerao Associate Director; and Palak Shukla, Analyst, noted that credit offtake has lagged the deposit growth numbers.
Credit offtake at 5.3 per cent for six months and 2.3 per cent for three months has lagged behind the deposit growth numbers of 6 per cent and 3.4 per cent for a similar period, according to the agency’s assessment.
Hence, the Credit-Deposit (CD) ratio derived from these flows from January would be around 70 per cent and from March would be approximately 54 per cent.
The rating agency’s BFSI team opined that the CD ratio indicates that the bank credit offtake could face challenges and is likely to be tepid for the year.