Non-food credit, accounting for 99.9% of the share of the total credit, recorded a growth of 13.6%, YoY, at Rs 16920802 crore as on 23 August 2024 as against a rise of 13.7% fortnight ago and 19.8% rise a year ago.

Food credit moved up 25.9% to Rs 24361 crore as on 23 August 2024. The overall credit-deposit ratio rose on sequential basis to 79.5% as on 23 August 2024 from 79.3% a fortnight ago, while rose from 77.5% in August 2023 with the faster growth in advances.

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 13.7% in July 2024 over a year ago, showing deceleration in growth compared with 19.7% increase in July 2023. The credit to agriculture accounting for 12.8% of total bank credit, expanded at an improved pace of 18.1% in July 2024 from 16.7% growth in July 2023. Meanwhile, the credit growth to the industry accounting for 22.1% of total bank credit increased 10.1% in July 2024 compared with 5.2% growth in July 2023. Within the industrial segment, the advances to large industry rose 8.5%, while credit to medium industry moved up 17.2% in July 2024. The credit for the micro and small industry increased 13.3% compared with 9.9% growth in July 2023.

Credit growth to the services sector accounting for 27.4% of total bank credit, has moderated to 14.0% in July 2024 compared with an increase of 23.4% in July 2023, driven by deceleration in credit growth for commercial real estate at 10.6%, NBFCs 12.7%, other services 16.9% and retail trade 15.3%, while credit growth has also eased for aviation to 12.5%, professional services 11.3%, transport operators 16.2% and wholesale trade (other than food procurement) 15.0%. However, the services credit growth for computer software accelerated for 20.0%, shipping 1.4%, while credit to tourism, hotels and restaurants moved up 8.3% in July 2024.

Personal loans accounting for 32.9% of total bank credit, increased at decelerated pace of 14.4% in July 2024 as against an increase of 31.2% in July 2023. Among the major segments of personal loans, the credit for housing increased at slower pace of 12.8%, other personal loans 13.6%, vehicle loans 16.4%, advances against fixed deposits 8.9%, credit card outstanding 22.0% and education 19.0%. However, the credit growth has improved for loans against gold jewellery to 39.0%, advances to individuals against share, bonds, etc 24.5% and consumer durables 11.3% in July 2024 from July 2023.

Priority sector loans accounting for 43.7% of total bank credit, increased at a slower pace of 15.2% in July 2024 compared with a 17.0% growth in July 2023. Among priority sector loans, the credit growth for Micro & Small Enterprises eased to 14.3% and Housing declined 2.1%, while credit to Weaker Sections improved 19.8% and Agriculture & Allied Activities 19.7%.

Industrial credit growth

Credit to the industrial sector accounting for 22.1% of the total banking sector credit increased 10.1% in July 2024 compared with a rise of 5.2% in July 2023. As per industry-wise classification, the segments showing negative credit growth were gems & jewellery (-) 3.6%. However, the credit growth has moderated for basic metal & metal product (13.3% from 19.3%), vehicles, parts & transport equipment (2.5% from 8.9%), cement & cement products (6.2% from 11.9%), wood & wood products (12.7% from 20.2%) and textiles (8.6% from 9.1%).

On the other hand, the credit growth has accelerated for other industries (30.6% from -0.6%), chemicals & chemical products (16.6% from 0.3%) and infrastructure (3.8% from 1.4%). The credit growth has also moved up for petroleum, coal & nuclear fuels (23.2% from -2.6%), food processing (16.7% from 4.8%), construction (11.5% from 5.1%), mining & quarrying (incl. coal) (5.5% from 0.1%) and paper & paper products (9.4% from 3.6%). Further, the credit growth has improved for all engineering (10.8% from 10.0%), beverage & tobacco (32.8% from 31.8%), leather & leather products (6.7% from 0.0%), rubber, plastic & their products (8.0% from 7.2%) and glass & glassware (29.7% from 29.0%), end July 2024 over July 2023.

Aggregate deposits

Aggregate deposits growth of the scheduled banks improved on sequential basis to 10.8% YoY at Rs 21324206 crore as on 23 August 2024, compared with 10.6% growth a fortnight ago and dipped from 13.2% rise a year ago.

The time deposits of the banks moved up 10.9% at Rs 18878152 crore, while the demand deposits increased 10.6% to Rs 2446054 crore as on 23 August 2024.

Investments of the banking sector

The banks investment in government and other approved securities that qualify for treatment of statutory liquidity ratio increased 7.9% YoY to Rs 6365349 crore as on 23 August 2024, showing deceleration in growth from 8.1% increase a fortnight ago.

The banks investment had moved up 16.5% in August 2023. The investment-deposit ratio improved on sequential basis to 29.9% as on 23 August 2024 from 29.8% a fortnight ago, while eased from 30.7% in August 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 continued to post stable earnings show, with steady return ratios in Q1FY2025. The moderate credit cost and improving asset quality continued to support the performance of the banking sector. The strong non-interest income aided the bottom lines of the banking sector. The loan growth remained strong for the retail, agriculture and MSME segment, while the corporate credit growth moderated.

Banks with a high credit-deposit ratio, which was causing systemic risk, remained focused on reducing it for the last two quarters. The deposit growth eased slightly to 12.4% end June 2024 from 13.8% end March 2024, mainly driven by the moderation in the Casa deposits growth to 5%, while the term deposits growth also eased to 17%. The competition for deposits remained steep as the banking sector continued to focus on growing deposits at a strong pace with an intention to meet credit demand and keep the credit deposit ratio in check.

The margins of the banking sector were impacted due to increase in cost of deposits and change in recognition of penal interest income from interest income line to other income line. The sharp decline in low cost Casa deposits further impacted the margins. The tight competition for deposits, pressure on Casa deposits growth, focus on maintaining credit deposit ratio etc may continue to exert pressure on margins.

The core fee income of the banking sector remained strong. The core fee income may remain steady with a stable business activity. Further, the decline in G-sec yield, with expectation of policy rate cuts and decline in inflation, will support treasury gains and may also lead to write back of provision for depreciation of investment book.

On the asset quality front, the unsecured segments such as microfinance and credit cards witnessed higher stress, while the agriculture segment showed seasonally high slippages. Banks attributed the high stress to extreme heat waves and difficulties in operations during the election period. However, the strong recoveries and upgradations of NPAs continued to assist improvement in asset quality. The unsecured segment is likely to continue to show pressure for next one-two quarters. The strong PCR and healthy contingency provision buffers may help to contain pressure on credit cost. With the high base, the sustainability of low credit cost will be key to drive earnings growth.