Banks’ credit growth moderated for the fifth straight month in November, driven by a slowdown in unsecured and personal loan segments, data released by the Reserve Bank of India (RBI) showed.
Banks’ credit increased by 11.8% year-on-year in November, compared to a 16.5% rise in the same month in 2023, excluding the impact of HDFC Bank’s merger with its parent, Housing Development Finance Corp, showed the latest data. Including the impact of the merger, banks’ loans grew 10.6% in November, compared with nearly 21% in the year-ago period.
The growth rate had slowed to 12.8% in October excluding the merger, and if the the merger is included, to 11.5%. Loan growth had also moderated in July, August and September.
Banks’ personal loan growth slowed to 12.2% in November from 22.4% a year ago, excluding the HDFC Bank merger impact, while growth in outstanding credit card debt dropped to 18.1% from 34.2% a year ago, according to the data.
The growth rate of unsecured retail lending has moderated sharply from 27% in September 2021 to 15.6% in September 2024. The slowdown comes after the central bank decided to increase risk weights on unsecured loans. Concerned about the sharp rise in personal loans, the banking sector regulator had decided to increase risk weights on secured loans in November 2023, when it directed banks and non-banking financial companies (NBFCs) to reserve more capital for risk weights. The mandatory risk weight requirement was increased by 25 percentage points and is applicable to unsecured personal loans, credit cards and lending to NBFCs.
The recently released Financial Stability Report (FSR) also highlighted rising impairment in the unsecured retail loan portfolios.
Growth of credit to the services sector decelerated to 14.4% in November from 22.2% a year ago, primarily due to lower growth in credit to the NBFCs, according to RBI data. Credit growth to NBFCs fell to 7.8% y-o-y in November 2024, compared to a 19% increase during the same period in 2023. Loans to industry grew by 8.1% y-o-y in the same month, quicker than the 5.5% growth in 2023. Credit card outstanding grew by 18.1% in November 2024, compared to 34.1% growth in the same month in the previous year.