Pace of bank credit to retail declined to 18% in October, shows RBI data

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The pace of bank credit in the retail segment moderated to 18 per cent on a year-on-year (Y-o-Y) basis in October 2023, down from 20.5 per cent a year ago. Bank lending to finance companies, which is part of the services sector, slowed to 22.1 per cent in October 2023, compared to 34.3 per cent in October 2022, according to Reserve Bank of India (RBI) data.

The month of October is marked by festive season demand and also the start of the busy season of the financial year.

The housing segment, which is the largest component of bank retail credit, clocked a growth of 14.5 per cent Y-o-Y in October 2023, down from 16.7 per cent in October 2022, according to Reserve Bank of India (RBI) data. The growth does not factor in the impact of HDFC’s merger with HDFC Bank in July 2023.

Year-on-year growth in credit card outstanding remained elevated at 28.0 per cent in October 2023 as against 29.4 per cent in October 2022. Other retail credit, which mostly comprises unsecured credit, showed a Y-o-Y growth of 22.3 per cent in October 2023, down from 25 per cent a year ago. Vehicle loans expanded at 20 per cent Y-o-Y, compared to 21.9 per cent in October 2022.

Concerned over default risks, the Reserve Bank of India has flagged high growth rates in unsecured credit and lending to finance companies. In November 2023, RBI raised risk weights for credit to these segments, forcing banks to set aside more capital for such exposures.

Madan Sabnavis, Chief Economist at Bank of Baroda, said it would be interesting to see the growth in lending to NBFCs in light of the recent capital norms. As funds are the raw material for their business, it is unlikely that there would be a slowdown even if interest rates rise.

The RBI stated that lending to industry – small, medium, and large – also slowed sharply to 5.4 per cent Y-o-Y in October 2023, down from 13.5 per cent in October 2022. Loans to large industry dipped to 2.8 per cent in October 2023 from 10.7 per cent a year ago.

Among major industries, credit growth (Y-o-Y) to ‘basic metal and metal products’ and ‘textiles’ accelerated in October 2023 compared to the same month last year. Lending to ‘chemicals and chemical products’, and ‘infrastructure’ decelerated.

Credit to the services sector showed growth of 20.1 per cent Y-o-Y as against 22.5 per cent a year ago, primarily due to non-banking financial companies (NBFCs) and trade.

Credit growth to agriculture and allied activities improved to 17.5 per cent Y-o-Y in October 2023 from 13.8 per cent a year ago, the RBI said.