Bank Credit Growth decreased to 16.2% in January, Check important data here

Bank credit growth slowed down to 16.2% year-on-year (y-o-y) in January 2024, compared to 16.7% a year earlier. This slowdown was mainly due to less growth in credit to industry, services, and personal loans sectors.

Agriculture Sector’s Credit Growth

• The agriculture and allied activities sector saw an improvement in credit growth, increasing to 20.1% y-o-y in January 2024 from 14.4% a year ago.

Credit to Industry

• Credit to the industry grew by 7.8% y-o-y in January 2024, down from 8.7% in January 2023.
• Notably, credit growth to ‘food processing’ and ‘textiles’ industries increased, while it decreased for ‘basic metal & metal products’ and ‘chemicals & chemical products’.

Credit to Services Sector

• Credit growth to the services sector slowed down to 20.7% y-o-y in January 2024, compared to 21.4% a year earlier.
• Growth in credit to ‘trade’ improved, but it decelerated for ‘non-banking financial companies (NBFCs)’.

Personal Loans

• Personal loans growth decreased to 18.4% y-o-y in January 2024 from 20.7% a year ago, mainly due to slower growth in vehicle and other personal loans.

Shifts in Bank Credit

• Recent trends show a shift in bank credit towards services and the retail sector.
• Retail loans, especially unsecured lending, have seen rapid and persistent growth over the past two years.
• Between September 2021 to September 2023, banks’ retail loans grew at a compound annual growth rate (CAGR) of 25.5%, exceeding the headline credit growth of 18.6%.
• Consequently, the share of retail lending in gross advances increased from 37.7% in September 2021 to 42.2% in September 2023.
• Unsecured retail lending grew by 27.0% during the same period, constituting 23.3% of total retail lending and 9.83% of total gross advances of the banks.

Concerns Highlighted by RBI’s Financial Stability Report

• While there are no immediate signs of stress in the retail credit segment, its rapid growth alongside a disinflationary monetary policy stance raises concerns.
• These concerns include the possibility of lending becoming pro-cyclical and increased debt servicing costs.