With the exporter segment hit by steep US tariffs, the initial impact is already visible in slowing credit demand and cautious lending, particularly in labour-intensive sectors grappling with margin pressures and order volatility.
Slowing credit to key sectors
Year-on-year growth in bank credit to exporters under priority sector lending declined to 4.7% to ₹12,875 crore as on July 25, from 11% growth at the end of June, according to the Reserve Bank of India’s sectoral deployment data released on Friday.
On August 27, the United States imposed an additional 25% tariff on Indian exports, raising total duties to 50% on key sectors such as textiles, gems and jewellery, seafood, and auto parts. Credit to industry recorded a moderate year-on-year growth of 6% in July, compared with 10.2% in the same month a year earlier.
Credit to micro, small and medium industries, however, continued to expand at a robust pace. Among major industries, outstanding credit to engineering, vehicles and auto parts, rubber and plastic products, and gems and jewellery recorded healthy growth.
Caution across the board
Bank credit to the services sector grew 10.6% in July, lower than the 14.5% growth recorded in the same period last year.
Growth in credit to non-banking financial companies decelerated sharply to 2.6% year-on-year, while lending to professional services, commercial real estate and trade segments remained strong, the data showed.
Banks also remained cautious on the personal loan segment, which saw growth moderate to 11.9% year-on-year compared with 14% a year earlier, largely due to slower growth in other personal loans, vehicle loans and credit card outstanding.
Credit to agriculture and allied activities grew 7.3% in July, significantly lower than the 18.1% growth seen in the previous year.
Overall, non-food bank credit expanded 9.9% year-on-year as of July 25, compared with 13.6% during the corresponding period last year.
