Non-food credit growth slows down in October 2024

The economy seems to be witnessing a slowdown in credit demand, going by RBI’s data on Banks’ non-food credit growth in October 2024.

Banks’ non-food credit growth increased at a slower clip of 12.8 per cent year-on-year (y-o-y) in October 2024, compared to 15.5 per cent a year ago, due to moderation in demand from agriculture & allied services, services and personal loan sectors, according to the RBI’s statement on sectoral deployment of Bank credit.

Within the overall credit growth, the only sector that saw relatively higher y-o-y growth was industry.

Credit growth in agriculture and allied activities was weaker at 15.5 per cent y-o-y in October 2024, compared with 17.4 per cent seen in the same month of last year.

Credit growth to the services sector slowed to 14.1 per cent y-o-y in October 2024 (from 20.4 per cent a year ago), primarily due to reduced growth in credit to ‘non-banking financial companies’ (NBFCs) and trade segment, as per the RBI statement.

However, credit growth (y-o-y) to ‘commercial real estate’ picked up in October 2024.

Personal loan growth saw a decline, registering 15.8 per cent y-o-y in October 2024 compared to 18 per cent a year ago, largely due to decline in growth in ‘other personal loans’, ‘vehicle loans’ and ‘credit card outstanding’.

However, ‘housing’ – the largest constituent of this segment – recorded accelerated growth y-o-y.

Credit to industry up

Credit growth to industry at 8 per cent y-o-y in October 2024 was higher compared with 4.8 per cent a year ago.

Among major industries, credit to ‘chemicals and chemical products’, ‘petroleum, coal products and nuclear fuels’, and ‘all engineering’ recorded a higher growth in October 2024 as compared to their respective growth rates a year ago, according to RBI statement.

Rating agency ICRA, in its recent assessment, said it anticipates the slew of regulatory measures and tighter funding conditions in the domestic markets to result in a steady slowdown in credit growth for the lenders -- banks and NBFCs.

The agency estimated the incremental bank credit growth to slow down to ₹19.0-20.5 lakh crore in FY25, which will translate into a y-o-y growth of around 12 per cent, compared to ₹22.3 lakh crore in FY24 (y-o-y growth of 16.3 per cent).

ICRA noted that the high credit growth during the last two years in the retail segment, across the lenders, has potentially resulted in over-leveraging in some asset segments, and a slower credit growth can impair the refinancing ability of some of these borrowers, as the lenders become risk averse.

Such tightening often results in weaker borrowers falling behind in their repayment schedule, thereby increasing the asset quality pressure for the lenders, it added.

The agency assessed that loan segments, which have high lending rates or marginal borrower profiles, like microfinance, personal loans, credit cards or unsecured business loans, are already showing rise in delinquencies.

ICRA expects these segments, which are largely unsecured, will continue to be a source of stress in the near term, and the spillover to secured asset classes, like micro and small mortgage loans, used vehicles and other small-ticket loans remains a near-term monitorable.

CARE Ratings, in a report said, the slowdown compared to last year can be attributed to a higher base effect, commentary on the reduction of a high credit-to-deposit ratio, and RBI measures such as higher risk weights, and the proposed LCR (liquidity coverage ratio) norms.