Non-food credit, accounting for 99.7% of the share of the total credit, recorded a growth of 11.1%, YoY, at Rs 17317145 crore as on 15 November 2024 as against a rise of 11.5% fortnight ago and 21.3% jump a year ago.

Food credit moved up 12.2% to Rs 45157 crore as on 15 November 2024. The overall credit-deposit ratio improved on sequential basis to 79.4% as on 15 November 2024 from 79.0% a fortnight ago, while eased from 79.6% in November 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 11.5% in October 2024 over a year ago, showing deceleration in growth compared with 20.1% increase in October 2023. The credit to agriculture accounting for 12.8% of total bank credit, expanded at slower pace of 15.5% in October 2024 from 17.4% growth in October 2023. Meanwhile, the credit growth to the industry accounting for 21.9% of total bank credit, increased 7.9% in October 2024 compared with 5.4% growth in October 2023. Within the industrial segment, the advances to large industry rose 6.0%, while credit to medium industry moved up 19.6% in October 2024. The credit for the micro and small industry increased 10.0% compared with 16.5% growth in October 2023.

Credit growth to the services sector accounting for 27.8% of total bank credit, has moderated to 12.7% in October 2024 compared with an increase of 24.0% in October 2023, driven by deceleration in credit growth for NBFCs at 6.4%, commercial real estate 13.9%, other services 20.7% and retail trade 10.2%, while credit growth has also eased for wholesale trade (other than food procurement) to 14.4%, transport operators 15.0%, aviation 17.1% and tourism, hotels and restaurants 5.4%. However, the services credit growth for computer software accelerated for 24.0%, professional services 21.6%, while credit to shipping moved up 17.6% in October 2024.

Personal loans accounting for 32.8% of total bank credit, increased at decelerated pace of 12.9% in October 2024 as against an increase of 29.6% in October 2023. Among the major segments of personal loans, the credit for housing increased at slower pace of 12.1%, other personal loans 10.9%, vehicle loans 11.4%, credit card outstanding 16.9%, advances against fixed deposits 10.9%, education 17.6%, and consumer durables 6.6%. However, the credit growth has improved for advances to individuals against share, bonds, etc. to 16.0%, and loans against gold jewellery 56.2% in October 2024 from October 2023.

Priority sector loans accounting for 43.3% of total bank credit, increased at a slower pace of 11.8% in October 2024 compared with a 18.1% growth in October 2023. Among priority sector loans, the credit growth for Micro & Small Enterprises eased to 12.3% and Housing 1.2%, while credit to Agriculture & Allied Activities also moderated to 13.7% and Weaker Sections 12.0%.

Industry wise credit

Credit to the industrial sector accounting for 21.9% of the total banking sector credit increased 7.9% in October 2024 compared with a rise of 5.4% in October 2023. As per industry-wise classification, the segments showing negative credit growth were mining & quarrying (incl. coal) (-6.3% from 0.5%) and gems & jewellery (-3.4% from 19.8%.

However, the credit growth has moderated for textiles (5.6% from 13.2%), cement & cement products (0.4% from 13.5%), vehicles, parts & transport equipment (3.3% from 9.6%) and basic metal & metal product (15.4% from 18.3%. The credit growth has also eased for beverage & tobacco (19.2% from 33.4%), glass & glassware (13.3% from 38.4%), food processing (9.9% from 11.2%) and wood & wood products (12.5% from 20.2%).

On the other hand, the credit growth has accelerated for petroleum, coal & nuclear fuels (27.9% from -24.4%), chemicals & chemical products (12.7% from 0.4%), other industries (19.1% from 9.3%), all engineering (14.5% from 9.6%) and infrastructure (1.6% from 1.1%). Further, the credit growth has improved for rubber, plastic & their products (11.4% from 5.1%), paper & paper products (10.7% from 5.3%), construction (7.0% from 6.9%) and leather & leather products (3.5% from 3.4%), end October 2024 over October 2023.

Aggregate deposits

Aggregate deposits growth of the scheduled banks decelerated on sequential basis but exceeded credit growth for second straight month at 11.2% YoY at Rs 21854018 crore as on 15 November 2024, compared with 11.7% growth a fortnight ago and dipped from 14.2% rise a year ago. The deposit growth was below loan growth for 29 months from May 2022 to September 2024. The time deposits of the banks moved up 11.5% at Rs 19340358 crore, while the demand deposits increased 8.9% to Rs 2513660 crore as on 15 November 2024.

Investments of the banking sector

The banks investment in government and other approved securities that qualify for treatment of statutory liquidity ratio increased 6.9% YoY to Rs 6489359 crore as on 15 November 2024, showing deceleration in growth from 7.2% increase a fortnight ago. The banks investment had moved up 17.7% in November 2023.

The investment-deposit ratio decelerated on sequential basis to 29.7% as on 15 November 2024 from 29.8% a fortnight ago, while eased from 30.2% in November 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 stable earnings show and steady return ratios for Q2FY2025, while there has been some divergence in the performance among banks. Banks having high exposure to unsecured credit segments such as microfinance, credit cards have been impacted due to rise in slippages and credit cost and moderation in loan growth. However, the other banks including PSBs and PVBs having limited exposure to unsecured credit have continued to post a healthy show.

The deposit growth remained steady at 12% end September 2024, as Casa deposits growth has shown marginal pick up to 7% and term deposit have moderated to 15%. The banking sector loan growth has moderated with PVBs focus on reducing CD ratio, dip in disbursements to the unsecured credit segments, high risk weights for unsecured credit and lending NBFCs. The credit growth for PSB would remain stable supported by lower CD ratio, while PVBs credit growth may remain steady and depend upon deposit mobilization and trajectory of lending to unsecured segments.

The margins of the banking sector were impacted due to increase in cost of deposits and decline in yield on advances. The decline in low cost Casa deposits further impacted the margins. The banking system liquidity has shown some improvement in the recent months. Some banks have also reduced saving deposit rates. All eyes will be on policy rate cuts from the RBI and the banks with high share of MCLR and fixed rate loan book and strong liability franchise would be better placed to protect margins.

On the asset quality front, the unsecured segments such as microfinance and credit cards witnessed substantially higher stress. The banks attributed the high stress to overleveraging, high inflation, extreme weather conditions etc. The unsecured segment is likely to continue to show pressure on fresh slippages and credit cost for next one-two quarters.