Bank credit growth (excluding the impact of HDFC’s merger with HDFC Bank) slowed to 13.8 per cent year-on-year (yoy) for the fortnight ended June 28, 2024, compared to 16.2 per cent growth recorded last year, due to a drop in credit demand, RBI measures such as higher risk weights on unsecured loans, and a higher base effect, according to CARE Ratings.

However, the outlook for bank credit offtake remains positive. Without considering the effect of the merger of HDFC with HDFC Bank, deposit growth, too, slowed to 8.7 per cent in the reporting fortnight, compared to 11.8 per cent last year.

In the fortnight under review, net deposit inflows were at ₹3.9 lakh crore, as against net credit expansion of ₹1.7 lakh crore.

“Credit offtake (including the impact of HDFC’s merger with HDFC Bank) continued to grow, albeit at a slower pace, increasing by 17.3 per cent yoy for the fortnight ending June 28, 2024 (vs 19.2 per cent yoy growth in the preceding fortnight) to reach ₹168.8 lakh crore.

“The impact of HDFC’s merger with HDFC Bank (which would subside by the end of Q1FY25) along with growth in personal loans continues to account for this growth, said Sanjay Agarwal, Senior Director; Saurabh Bhalerao, Associate Director; and Tejas Poojary, Analyst, CARE Ratings.

In absolute terms, over the last 12 months, credit offtake expanded by ₹24.9 lakh crore to reach ₹168.8 lakh crore as of June 28, 2024.

“Personal loan demand supported by the MSME and commercial real estate sectors continues to drive bank credit growth (which continues to outpace deposit growth). Personal loans remain the leading segment, while industrial sector growth remained slow compared to others,” the rating agency officials said.

They observed that the medium-term prospects look promising, with sustained personal loans along with the anticipated increase in capex spending, especially in the private sector.

The rating agency estimated credit growth to be in the range of 14-14.5 per cent during FY25. Further, ebbing inflation could also reduce working capital demand.

The agency officials assessed that the effect of the HDFC merger would dissipate by the end of Q1FY25. However, elevated interest rates and global uncertainties could adversely impact credit growth.

Deposit growth

In absolute terms, deposits expanded by ₹26 lakh crore over the last 12 months to reach ₹212.9 lakh crore as of June 28, 2024.

“Deposit growth, though it has improved, has continuously lagged credit growth in the past year. It is expected to be prominent in FY25 as banks intensify efforts to strengthen their liability franchise.

“This focus aims to prevent constraints on credit uptake due to deposit growth,” the agency said. It estimated deposit growth to range between 13 per cent and 13.5 per cent during FY25.

The officials noted that deposit growth has seen relatively steady performance since Covid times. However, in recent periods, credit growth has outperformed deposit growth.

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