Bank loan growth slows for fifth month in Nov amid stricter lending rules

Indian banks' loan growth moderated for a fifth straight month in November, central bank data showed, as lenders continued to rein in unsecured and personal loans after the Reserve Bank of India's crackdown on "exuberant" lending.

Banks' credit increased by 11.8 per cent year-on-year last month, slower than the 16.5 per cent rise in November 2023, excluding the impact of HDFC Bank's merger with its parent Housing Development Finance Corp, according to RBI data released late on Tuesday.

Including the impact of the merger, banks' loans grew 10.6 per cent last month, compared with nearly 21 per cent in the year-ago period.

The growth rate had slowed to 12.8 per cent in October, excluding the merger, and to 11.5 per cent including the merger. Loan growth had also moderated in July, August and September.

Indian banks have consistently reported double-digit loan growth for a while, helped by healthy retail demand and urban consumption.

However, in late 2023, the RBI, worried about the risk of bad loans, imposed higher capital requirements on personal loans and credit cards, which is now translating into slower growth in these segments.

Banks' personal loan growth slowed to 12.2 per cent in November from 22.4 per cent a year ago, excluding the HDFC Bank merger impact, while growth in outstanding credit card debt dropped to 18.1 per cent from 34.2 per cent a year ago, the data showed.

The RBI has also warned the financial sector against "all forms of exuberance", asked lenders to be watchful of a build-up in stress due to new lending models and flagged concerns about the interconnectedness between banks and non-banking finance companies (NBFCs).

Credit growth to the services sector decelerated to 14.4 per cent in November from 22.2 per cent a year ago, primarily due to lower growth in credit to NBFCs.

On the flip side, loans to industry grew by 8.1 per cent year-on-year last month, quicker than the 5.5 per cent growth last year.