Retail loan growth moderates to 17.8% due to slowdown in unsecured credit

The pace of retail loan growth moderated to 17.8 per cent year-on-year (Y-o-Y) in May 2024 from 19.1 per cent due to a sharp slowdown in the unsecured credit segment, the Reserve Bank of India (RBI) said.

The growth in “other personal loans” category, which predominantly covers unsecured advances, declined 17.3 per cent Y-o-Y in May 2024 from 25.2 per cent, according to RBI data.

In November 2023, the regulator hiked the risk weight on certain loans in a signal to lenders to moderate credit expansion.

The regulatory prescription of higher risk weights had a sobering impact on such loans, RBI said in its Financial Stability Report for June 2024.

Within the retail segment, credit growth in housing, the largest constituent in retail category, accelerated to 16.9 per cent in May 2024 from 13.8 per cent a year ago.

The growth in loan against gold jewellery also showed a sharp uptick to 29.7 per cent from 15.1 per cent a year ago.

RBI said the non-food bank credit registered a growth of 16.2 per cent in May 2024 as compared with 15.5 per cent a year ago.

The credit to industry grew by 8.9 per cent in May 2024 up from 6 per cent in May 2023.

Among major industries, credit growth (Y-o-Y) to all engineering, chemicals and chemical products, food processing, infrastructure, and textiles accelerated in May this year.

However, credit growth to basic metal and metal products and petroleum has decelerated.

RBI said that credit growth to the services sector remained robust at 20.7 per cent in May 2024 (21.3 per cent a year ago), supported by an improved credit growth in commercial real estate transport operators and professional services.

Credit growth to non-banking financial companies (NBFCs) however, declined in May 2024 as compared with May 2023, RBI said.

Credit growth to agriculture and allied activities increased to 21.6 per cent (Y-o-Y) in May 2024 from 16 per cent, it added.