The Scheduled commercial banks (SCBs) credit growth has decelerated on sequential basis to 11.5% YoY to Rs 17238250 crore as on 18 October 2024, compared with 13.0% growth a fortnight ago. The credit growth has decelerated from 20.4% growth at end August 2023. Non-food credit, accounting for 99.9% of the share of the total credit, recorded a growth of 11.5%, YoY, at Rs 17219596 crore as on 18 October 2024 as against a rise of 13.0% fortnight ago and 20.5% rise a year ago. Food credit dipped 6.0% to Rs 18654 crore as on 18 October 2024.

The overall credit-deposit ratio decelerated on sequential basis to 79.0% as on 18 October 2024 from 79.6% a fortnight ago, while dipped from 79.2% in August 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 13.0% in September 2024 over a year ago, showing deceleration in growth compared with 20.0% increase in September 2023. The credit to agriculture accounting for 12.7% of total bank credit, expanded at steady pace of 16.4% in September 2024 from 16.7% growth in September 2023.

The credit growth to the industry accounting for 22.2% of total bank credit, increased 8.9% in September 2024 compared with 6.5% growth in September 2023. Within the industrial segment, the advances to large industry rose 6.5%, while credit to medium industry moved up 20.5% in September 2024. The credit for the micro and small industry increased 13.4% compared with 9.9% growth in September 2023.

Credit growth to the services sector accounting for 27.7% of total bank credit, has moderated to 13.7% in September 2024 compared with an increase of 25.4% in September 2023, driven by deceleration in credit growth for NBFCs at 9.5%, commercial real estate 12.5%, other services 19.7% and retail trade 10.9%, while credit growth has also eased for aviation to 13.4%, transport operators 17.0%, professional services 16.7% and tourism, hotels and restaurants 3.9%. However, the services credit growth for wholesale trade (other than food procurement) accelerated for 17.6%, computer software 23.2%, while credit to shipping moved up 7.9% in September 2024.

Personal loans accounting for 32.7% of total bank credit, increased at decelerated pace of 13.4% in September 2024 as against an increase of 30.0% in September 2023. Among the major segments of personal loans, the credit for housing increased at slower pace of 12.6%, other personal loans 11.4%, vehicle loans 13.3%, credit card outstanding 18.0%, advances against fixed deposits 9.4%, education 17.6%, and consumer durables 8.6%. However, the credit growth has improved for advances to individuals against share, bonds, etc to 22.9%, and loans against gold jewellery 51.0% in September 2024 from September 2023.

Priority sector loans accounting for 43.0% of total bank credit, increased at a slower pace of 13.0% in September 2024 compared with a 15.6% growth in September 2023. Among priority sector loans, the credit growth for micro & small enterprises eased to 13.1%, Housing 1.7% and Agriculture & Allied Activities 15.0%, while credit to Weaker Sections also moderated to 14.2%.

Industrial credit growth

Credit to the industrial sector accounting for 22.2% of the total banking sector credit increased 8.9% in September 2024 compared with a rise of 6.5% in September 2023.

As per industry-wise classification, the segments showing negative credit growth were gems & jewellery (-1.8% from 16.2%) and cement & cement products (-0.7% from 15.9%. However, the credit growth has moderated for textiles (5.4% from 13.3%), infrastructure (2.1% from 3.0%), vehicles, parts & transport equipment (3.2% from 13.3%) and basic metal & metal product (15.4% from 19.7%. The credit growth has also eased for beverage & tobacco (21.3% from 44.7%), wood & wood products (11.0% from 22.3%), glass & glassware (14.8% from 37.0%) and mining & quarrying (incl. coal) (0.0% from 2.1%).

On the other hand, the credit growth has accelerated for petroleum, coal & nuclear fuels (24.8% from -10.6%), other industries (24.3% from 4.0%), chemicals & chemical products (14.9% from 2.8%), all engineering (15.7% from 7.3%) and construction (11.8% from 3.1%). Further, the credit growth has improved for food processing (11.6% from 8.6%), rubber, plastic & their products (10.7% from 6.0%), paper & paper products (10.9% from 5.5%) and leather & leather products (5.6% from 2.4%), end September 2024 over September 2023.

Aggregate deposits

Aggregate deposits growth of the scheduled banks improved on sequential basis to 11.7% YoY at Rs 21807565 crore as on 18 October 2024, compared with 11.5% growth a fortnight ago and dipped from 13.2% rise a year ago. The time deposits of the banks moved up 11.6% at Rs 19263096 crore, while the demand deposits increased 13.2% to Rs 2544470 crore as on 18 October 2024.

Investments of the banking sector

The banks investment in government and other approved securities that qualify for treatment of statutory liquidity ratio increased 7.2% YoY to Rs 6486975 crore as on 18 October 2024, showing acceleration in growth from 7.0% increase a fortnight ago.

The banks investment had moved up 18.9% in August 2023. The investment-deposit ratio decelerated on sequential basis to 29.7% as on 18 October 2024 from 29.8% a fortnight ago, while eased from 30.8% 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 credit growth has continued to record healthy earnings show on low credit cost and healthy loan growth. The loan growth of the banking sector has moderated on account of high base, while the stressed in the retail unsecured and personal segment has contributed to the moderation in loan growth. The high risk weights for certain loan segments also impacted the loan growth.

The net interest margins of the bank sector have witnessed pressure on account of increase in cost of deposits and focus on deposits mobilization as the focus of the banking sector was on containing any rise in the credit-deposit ratio. The reclassification of penal interest income from interest income line to other income line also impacted the margins.

The banking sector has continued to improve asset quality in Q2FY2025 with absolute as well as percentage reduction in NPAs. However, the unsecured retail credit segments such as microfinance and credit cards have witnessed accelerated asset quality stress and provisioning. The credit card lenders have indicated stress to have peaked, microfinance lenders expects stress to normalize in Q4FY2025.

The sharp decline in the 10-year g-sec yield during Q2FY2025 boosted the investment income of the banking sector and particularly public sector banks for the quarter. Going forward, the high inflation and delaying of interest rate cut from RBI may keep yield and banks treasury gains rangebound.