Non-food credit, accounting for 99.8% of the share of the total credit, recorded a growth of 17.4%, YoY, at Rs 16848272 crore as on 12 July 2024 as against a rise of 20.7% fortnight ago and 18.2% rise a year ago.

Food credit moved up 21.5% to Rs 33904 crore as on 12 July 2024. The overall credit-deposit ratio decelerated on sequential basis to 79.3% as on 12 July 2024 from 79.6% a fortnight ago, while jumped from 75.1% in June 2023 with the faster growth in deposits.

Sectoral deployment of bank credit

As per the data on sectoral deployment of bank credit as released by the Reserve Bank of India (RBI), non-food bank credit increased 17.4% in June 2024 over a year ago, showing acceleration in growth compared with 16.3% increase in June 2023. The credit to agriculture accounting for 12.8% of total bank credit, expanded at slower pace of 17.4% in June 2024 from 19.7% growth in June 2023. Meanwhile, the credit growth to the industry accounting for 22.1% of total bank credit, increased 8.1% in June 2024 compared with 7.4% growth in June 2023. Within the industrial segment, the advances to large industry rose 6.9%, while credit to medium industry moved up 12.6% in June 2024. The credit for the micro and small industry increased 11.0% compared with 12.9% growth in June 2023.

Credit growth to the services sector accounting for 27.9% of total bank credit, has moderated to 17.4% in June 2024 compared with an increase of 26.8% in June 2023, driven by deceleration in credit growth for NBFCs at 8.5%, retail trade 14.4%, aviation 9.1% and other services 27.6%, while credit growth has also eased for professional services to 14.7% and transport operators 18.7%. However, the services credit growth for commercial real estate accelerated for 40.7%, wholesale trade (other than food procurement) 15.1%, tourism, hotels and restaurants 11.2% and computer software 13.1%, while credit to shipping declined 3.7% in June 2024.

Personal loans accounting for 32.5% of total bank credit, increased at an accelerated pace of 25.6% in June 2024 as against an increase of 21.3% in June 2023. Among the major segments of personal loans, the credit for housing increased at improved pace of 36.3%, loans against gold jewellery 30.5%, education 20.0%, and advances to individuals against share, bonds, etc. 19.3%. However, the credit growth has moderated for other personal loans to 15.2%, advances against fixed deposits 4.0%, vehicle loans 14.9%, credit card outstanding 23.3%, and consumer durables 7.6% in June 2024 from June 2023.

Priority sector loans accounting for 43.4% of total bank credit, increased at a slower pace of 16.5% in June 2024 compared with a 18.5% growth in June 2023. Among priority sector loans, the credit growth for Micro & Small Enterprises eased to 14.2%, Agriculture & Allied Activities 17.7% and Weaker Sections 19.6%, while credit to Housing expanded 18.9%.

Industrial credit growth

Credit to the industrial sector accounting for 22.1% of the total banking sector credit increased 10.4% in June 2024 compared with a rise of 6.0% in June 2023.

As per industry-wise classification, the credit growth has moderated for petroleum, coal & nuclear fuels (1.9% from 31.0%), mining & quarrying (incl. coal) (0.1% from 17.7%), basic metal & metal product (14.4% from 16.5%), cement & cement products (10.4% from 12.9%) and gems & jewellery (7.2% from 7.2%). On the other hand, the credit growth has accelerated for infrastructure (9.4% from 1.8%), chemicals & chemical products (17.4% from 4.6%) and food processing (14.0% from 4.1%).

The credit growth has also moved up for all engineering (12.2% from 5.2%), textiles (10.6% from 5.3%), other industries (0.8% from -2.0%), vehicles, parts & transport equipment (14.4% from 7.1%), beverage & tobacco (35.1% from 29.1%) and construction (10.1% from 8.2%). Further, the credit growth has improved for rubber, plastic & their products (12.8% from 9.9%), glass & glassware (57.3% from 34.7%), paper & paper products (10.6% from 5.2%), wood & wood products (21.4% from 21.3%) and leather & leather products (6.5% from 2.2%), end June 2024 over June 2023.

Aggregate deposits

Aggregate deposits growth of the scheduled banks decelerated on sequential basis to 11.1% YoY at Rs 21285821 crore as on 12 July 2024, compared with 14.0% growth a fortnight ago and dipped from 15.5% rise a year ago. The time deposits of the banks moved up 11.8% at Rs 18684143 crore, while the demand deposits increased 6.2% to Rs 2601677 crore as on 12 July 2024.

Investments of the banking sector

The banks investment in government and other approved securities that qualify for treatment of statutory liquidity ratio increased 8.6% YoY to Rs 6157070 crore as on 12 July 2024, showing deceleration in growth from 11.5% increase a fortnight ago. The banks investment had moved up 16.0% in June 2023. The investment-deposit ratio decelerated on sequential basis to 28.9% as on 12 July 2024 from 29.3% a fortnight ago, while eased from 29.6% in June 2023 with the faster growth in deposits. The investment-deposit ratio is much higher above the Statutory Liquidity Ratio of 18.0%.

Outlook

The banking sector has continued to post a healthy earnings show in Q1FY2025 with moderate credit cost and continuous improvement in asset quality. The asset quality of the banking sector continued to improve with strong recoveries and write-offs. However, the banking sector witnessed increase in fresh slippages of loans driven by elevated stress in the personal loans and unsecured loans segment. The asset quality was mainly impacted due to operational challenges during election period, severe heat waves and some delay in salary payment in some states. The seasonality factor relating to high NPAs in agriculture sector for Q1 also impacted the asset quality. However, the banks have also built a strong PCR and healthy contingency provision buffers.

The loan growth has moderated slightly due to high base. The shading of low yield advances also impacted the loan growth, while the slow activity during the first quarter further impacted loan growth. The loan growth would moderate further in Q2FY2025 with high base effect.

The banking sector has witnessed sharp pressure on deposits growth and CASA deposits. There would be steep competition for deposits as the banking sector intents to keep the high credit deposit ratio in check. The repricing of deposits has been almost completed, but the decline in Casa deposit ratio would keep pressure on NIMs.