Banks loan growth drops for 6th month in Dec as tighter lending curbs weigh

Indian banks' loan growth moderated for a sixth straight month in December, central bank data showed on Friday, as the impact of the Reserve Bank of India's tighter lending norms for unsecured loans continued to ripple through the system.

The data showed that banks' credit increased by 12.4 per cent year-on-year last month, slower than the 15.6 per cent rise in December 2023, excluding the impact of HDFC Bank's merger with its parent Housing Development Finance Corp.

Including the impact of the merger, banks' loans grew 11.2 per cent last month, compared with 20 per cent in the year-ago period.

The loan growth rate had slowed to 11.8 per cent in November 2024, excluding the merger, and to 10.6 per cent including the merger.

Indian banks have consistently reported double-digit loan growth for years as lenders flocked into retail credit, specifically unsecured loans, which led to overlending towards these segments.

In late 2023, the RBI, worried about the risk of bad loans, imposed higher capital requirements on personal loans and credit cards as well as credit to non-banking finance companies (NBFCs), which has led to lenders paring growth in these areas.

Banks' personal loan growth slowed to 14.9 per cent in December from 17.6 per cent a year ago, excluding the HDFC Bank merger impact, while growth in outstanding credit card debt dropped to 15.6 per cent from 32.6 per cent a year ago, the data showed.

Credit growth to the services sector decelerated to 11.7 per cent in December from 23.3 per cent a year ago, primarily due to lower growth in credit to NBFCs.

In addition to the tighter lending norms, banks are also consciously scaling back loan growth to bring down their credit-deposit ratio, a key metric to assess banks' liquidity position, amid a broad scramble to raise deposits.

Meanwhile, loans to industries grew by 7.2 per cent year-on-year last month, modestly slower than the 8 per cent growth last year.