Non-food credit, accounting for 99.7% of the share of the total credit, recorded a growth of 11.3%, YoY, at Rs 17812300 crore as on 21 February 2025 as against a rise of 11.1% fortnight ago and 20.1% rise a year ago. Food credit moved up 23.1% to Rs 56179 crore as on 21 February 2025.

The overall credit-deposit ratio improved on sequential basis to 80.8% as on 21 February 2025 from 80.4% a fortnight ago, while jumped from 79.5% in February 2024 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 11.4% in January 2025 over a year ago, showing deceleration in growth compared with 20.4% increase in January 2024. The credit to agriculture accounting for 12.6% of total bank credit, expanded at slower pace of 12.2% in January 2025 from 20.0% growth in January 2024. Meanwhile, the credit growth to the industry accounting for 21.7% of total bank credit, increased 8.0% in January 2025 compared with 8.0% growth in January 2024. Within the industrial segment, the advances to large industry rose 6.4%, while credit to medium industry moved up 18.5% in January 2025. The credit for the micro and small industry increased 9.5% compared with 16.0% growth in January 2024.

Credit growth to the services sector accounting for 28.0% of total bank credit, has moderated to 12.5% in January 2025 compared with an increase of 24.2% in January 2024, driven by deceleration in credit growth for other services at 17.2%, NBFCs 7.7%, commercial real estate 13.9% and retail trade 10.5%, while credit growth has also eased for transport operators to 11.8%, aviation 0.9%, wholesale trade (other than food procurement) 18.1%, tourism, hotels and restaurants 5.9% and professional services 18.3%. However, the services credit growth for computer software accelerated for 28.2% and shipping 1.1% in January 2025.

Personal loans accounting for 32.6% of total bank credit, increased at decelerated pace of 11.8% in January 2025 as against an increase of 28.6% in January 2024. Among the major segments of personal loans, the credit for consumer durables declined 2.6%, while the credit growth has moderated for housing 11.0%, other personal loans 8.7%, and vehicle loans 9.7%. Further, the credit growth has eased for credit card outstanding to 13.0%, education 15.9%, and loans against gold jewellery 76.9% while the credit growth for advances against fixed deposits improved to 16.3% and advances to individuals against share, bonds, etc. 33.0% in January 2025 from January 2024.

Priority sector loans accounting for 43.0% of total bank credit, increased at a slower pace of 10.5% in January 2025 compared with a 20.2% growth in January 2024. Among priority sector loans, the credit growth for Housing declined 1.3%, while credit to Micro & Small Enterprises moderated to 13.0%, Agriculture & Allied Activities 10.8% and Weaker Sections 10.8%.

Aggregate deposits

Aggregate deposits growth of the scheduled banks improved on sequential basis to 10.3% YoY at Rs 22126572 crore as on 21 February 2025, compared with 9.8% growth a fortnight ago and dipped from 13.3% rise a year ago.

The time deposits of the banks moved up 10.8% at Rs 19615659 crore, while the demand deposits increased 6.6% to Rs 2510913 crore as on 21 February 2025.

Investments of the banking sector

The banks investment in government and other approved securities that qualify for treatment of statutory liquidity ratio increased 11.1% YoY to Rs 6635022 crore as on 21 February 2025, showing acceleration in growth from 10.1% increase a fortnight ago. The banks investment had moved up 17.6% in February 2024.

Outlook

The banking sector has continued to post stable earnings and return ratios for Q3FY2025, driven by healthy growth in the non-interest income and dip in the cost to income ratio. On the other hand, the decline in margins and increase in credit cost hurt the performance. There has been divergent performance among banks, with PSBs maintaining healthy performance, driven by continuous improvement in the asset quality and credit cost at multi quarter low. However, the PVBs performance was impacted due to increase in slippages and credit cost, while the margins have declined further in Q3FY2025.

The deposit growth remained steady at 11.5% end December 2024, as Casa deposits growth has remained low at 6%. The banking sector loan growth has moderated with tight liquidity conditions, high CD ratio of few PVBs, dip in disbursements to unsecured credit segments and high risk weights. The banking system has been witnessing tight liquidity conditions, while the RBI has taken various measures such as cash reserve ratio reduction of 50 bps to 4% in December 2024. The RBI further announced to infuse Rs 1.5 lakh crore into the banking system through OMOs, repo auctions, and a dollar-rupee swap etc in January 2025. The credit growth would depend upon improvement in the liquidity conditions and easing of the stress in the retail credit segments. The RBI decision to roll back high-risk weights for bank credit to NBFCs is positive for growth, while risk weights for unsecured credit remains high.

The margins of the banking sector were affected due to lagged rise in cost of deposits and decline in yield on advances. The decline in low-cost Casa deposits further hurt the margins. The margins may continue to remain under pressure with the RBI kicking off rate cut cycle reducing the policy repo rate by 25 bps in February 2025. The lending rates on repo linked loan book would adjust lower and impact the yield on loan book, while the benefit of lower borrowings costs and deposits would accrue with lag thus initially impacting the margins. The banks with a high share of MCLR and fixed rate loan book may be better placed to protect margins. The treasury segment of the banks would benefit from lower rates and RBI measures to infuse liquidity in Q4FY2025.

On the asset quality front, the unsecured segments such as microfinance and credit cards witnessed substantially higher stress. The unsecured segment is likely to continue to show high fresh slippages and credit cost for next one-two quarters.