Bank loans to NBFCs moderate in November

The merger of HDFC with HDFC Bank has led to a significant increase in credit growth figures for July, reaching 19% compared to 14.5% the previous year. However, without the merger, loan growth only amounted to 14.7%. Retail loans saw a rise of 18.4% in July, with housing and vehicle loans supporting the increase.

On a year-on-year (y-o-y) basis, non-food bank credit rose 15.3 per cent in October 2023 compared with 18.3 per cent a year ago according to the latest data on sectoral deployment of bank credit was released by the Reserve Bank of India largely due to the merger impact of HDFc with HDFC Bank. Excluding the merger impact, credit offtake is higher 19.8 percent in October this year.

The data on sectoral development of bank credit in January 2023 showed that the personal loan outstanding on January 27, 2023, was Rs 39.59 lakh crore as against 32.87 lakh crore in a year ago.

Growth in personal loans accelerated to 204 per cent annually in January 2023 largely driven by housing and vehicle loans according to data released by the Reserve Bank on Tuesday

In FY'23, credit growth outweighed deposit growth at its highest rate in eleven years even as banks fully transmitted their lending rates linked to external benchmarks. This may not necessarily be linked to interest rates but rather economic activity, according to the RBI's monetary policy report. Moreover, an analysis of non-food credit and deposit data by the RBI showed that credit growth is supported by deposit growth.

The Reserve Bank data also showed that credit to industry registered a growth of 6.1 per cent (year-on-year) in August 2023 compared to 11.4 per cent a year ago. Among major industries, credit growth (y-o-y) to basic metal and metal products and textiles accelerated in August 2023. However, the credit growth in chemicals and chemical products, food processing and infrastructure decelerated.

That type of borrowing had surged more than 25% in the past year, according to Macquarie Group, far higher than growth in consumer incomes, potentially creating a debt trap for borrowers and giving rise to defaults.

“Monetary policy transmission to bank lending and deposit rates has been stronger in this cycle compared to previous cycles” the Reserve Bank of India said In its latest Financial Stability Report.

There are, however, also some incipient signs of stress in the form of shrinking net interest margins & build-up of bad loans in retail segment that need to be monitored.

India's central bank has cautioned lenders at meetings held over at least the past three months about the growing risk of delinquencies on unsecured loans amid rising interest rates and high inflation, four banking sources said.