Loan growth moderates in September amid RBI clampdown, shows data

Indian banks' loan growth moderated this September, compared with the same month a year ago, central bank data showed on Thursday, as the impact of the Reserve Bank of India's clampdown on "exuberance" in retail lending continued.

Banks' credit grew at 14.4% year-on-year last month, slower than the 15.3% increase in September 2023, excluding the impact of HDFC Bank merging with parent Housing Development Finance Corp (HDFC), the RBI said.

Including the impact of the merger, banks' loans grew 13% last month, compared with 20% a year ago.

Loan growth had moderated in August as well.

Indian banks have consistently reported double-digit loan growth for a while, helped by healthy economic growth and urban consumption. However, the RBI, worried about the risk of bad loans, imposed higher capital requirements on banks late last year.

Despite that, some segments, such as personal loans and credit card loans posted strong growth, in excess of 25%, until earlier this year when the central bank governor warned against "exuberance".

The RBI followed up on its norms with a series of actions against non-complying entities and that, along with rising defaults especially in the once fast-growing segments like personal loans and credit cards, have slowed both loan growth.

Banks' personal loan growth halved to 12.1% in September from a year ago, while growth in credit card outstanding dropped to 18% from 31.4% a year ago, the RBI data showed.

A rise in defaults by over-leveraged small borrowers is hitting India's top lenders, with bank executives and analysts expecting higher levels of stress in these personal segments over the next year.

Credit growth to the services sector decelerated to 15.2% in September from 21.6% a year ago, primarily due to lower growth in credit to non-banking financial companies.

On the flip side, loans to industry grew by 9.1% year-on-year in September, quicker than the 6% growth last year.