The loan growth continued to remain subdued at 9.5% year-on year for the fortnight ended June 27 while the rise in bank deposits at 10.1% outpaced the credit advancement, data released by the Reserve Bank of India on Friday showed.
Analysts at HSBC believe that weak corporate credit demand and low deposit growth would keep FY26 credit growth muted.
On a fortnightly basis, deposits were up 1.54% and stood at Rs 234.26 lakh crore, while loans grew 0.92% and stood at Rs 184.83 lakh crore. Bank investments were up 8.75% on year to Rs 66.96 lakh crore as on June 27.
Loan disbursements have got off to a sluggish start this fiscal, with the non-food credit growth for the banking system moderating to an anaemic 8.8% YoY in May, from 9.9% in April 25. In May, growth trends remained soft across segments. Within retail loans, the growth in home loans continued to moderate.
Experts point out that the moderation in growth has been driven by subdued demand momentum, an unfavourable base and a focus on managing the credit-to-deposit (CD) ratio, which remains close to 80%. “Due to pricing pressures, banks generally have been less enthusiastic about aggressive lending,” said an executive at a bank.
According to Sanjay Agarwal, senior director at CareEdge Ratings, weak private sector capital expenditure and continued reliance on large corporations have dampened the industrial credit demand. “Credit to commercial real estate and NBFCs has also decelerated, weighed down by regulatory tightening, base effects and increased reliance on foreign and capital market funding. Meanwhile, reclassification of agri-gold loans as retail credit has affected the growth in farm credit.”
Indeed, the credit demand has remained muted across segments, including NBFCs and retail. “NBFCs have been borrowing heavily from mutual funds as banks have not lowered the lending rate despite the policy rate cuts by the RBI,” said a senior banker.