Slowing personal, farm lending drags bank credit growth by 6 percentage points

After reporting robust growth in FY24, credit offtake is anticipated to moderate in FY25, led by continued temperance in unsecured retail and slower corporate credit off-take

Bank credit growth fell by nearly 6 percentage points in July from a year earlier, driven by a slowdown in personal, agriculture, and small business segments, research reports and bankers said. A September 10 CareEdge report showed banks' lending growth slowed to 13.7 percent in July from 19.5 percent in the year-ago period.

Lending growth slowed across all major sectors except industry in the period, with growth in personal loans slowing to 14.4 percent from 31.2 percent. The decline was driven by a slowdown in vehicle and unsecured loans, impacted by the HDFC-HDFC Bank merger, though partially offset by an increase in gold loans, according to the CareEdge report.

Similarly, lending to agriculture slowed to 4.1 percent in July 2024 from 5.8 percent. Bankers attributed the slowdown to seasonal pressures in the early months of FY25. “There was pressure seen in some areas of north India and in the first few months of the year in agri space. Hence, we are looking at some pressure going ahead too,” the banker said.

The services segment witnessed a decrease in credit growth to 14 percent on a year-on-year basis in July 2024 from 23.4 percent in July 2023. This decline in growth, according to analysts, can be attributed to reduced credit expansion in the non-banking financial companies’ (NBFCs) and trade sectors which was partially offset by a rise in commercial real estate. The industry segment saw credit growth at 10.1 percent y-o-y from 5.2 percent.

The larger credit situation

A banker who requested anonymity highlighted that the banking sector's larger credit growth may see some slowdown. “Other than the slowdown in personal loans, banks are struggling to grow other segments too. This will last for a few more months,” the banker said.

Similarly, the CareEdge report highlighted that after reporting robust growth in FY24, credit offtake is anticipated to moderate in FY25, led by continued temperance in unsecured retail and slower corporate credit off-take. “Credit growth is anticipated to see broad-based growth across segments, with personal loans likely to outperform industry and service sectors,” it said.

Banks are also expected to work on managing their CD ratio with enhanced focus on shoring up the deposit base. With he proposed liquidity coverage ratio (LCR) norms, bank credit offtake could face challenges, and growth is likely to moderate from earlier expectations, the report said.