Bank credit growth slows in Q2; personal loans maintain double-digit growth

Banks continued to depend on personal loans for credit growth in the September quarter (July-September, or Q2), showed the data released by the Reserve Bank of India (RBI) on Friday. While bank credit grew only 5.4 per cent in Q2 on a year-on-year (YoY) basis, personal loans, accounting for one fourth of the credit, continued to maintain double-digit growth.

  

Credit had grown 5.7 per cent in the previous quarter. Industrial credit, however, contracted 1.7 per cent YoY and its share in total credit was nearly 30 per cent at the end of the quarter.

Credit growth in metropolitan branches of banks decelerated 3.3 per cent YoY, but branches in rural, semi-urban and urban areas compensated for it. “Bank credit to private non-financial companies continues to contract (YoY) for the fourth successive quarter and was (-) 6.7 per cent, reflecting tepid demand conditions,” the RBI said, even as the weighted average lending rate for outstanding credit fell 21 basis points during the quarter. 

Meanwhile, the RBI’s Trends and Progress Report showed that despite falling credit demand, banks witnessed heavy mobilisation of deposits. 

People flocked to public sector banks with their money considering it a safe haven. As a result, during 2020-21, “deposits with PSBs grew at a higher pace than usual”.  

“Term deposit growth of private banks decelerated sharply even as it quadrupled in public sector banks.”

However, other asset classes also competed for the deposits and in some cases offered better returns. Therefore, growth in term deposits — which make up for almost 60 per cent of deposits — moderated. 

A subdued credit growth rate and a relatively robust deposit growth rate for most part of the year resulted in a decline in borrowing requirements of banks, except for private banks, the RBI said in its report.on personal loans for credit growth in Q2