Bank credit growth (y-o-y) decelerated to 11.8 percent in December 2024 from 12.6 percent in September 2024, while aggregate deposits increased at a marginally lower pace of 11 percent compared to the 11.7 percent growth in the July-September period
Mumbai: With banks facing challenges in mobilizing deposits, reducing their exposures to unsecured loans and non-banking financial companies (NBFCs) due to higher risk weights, and a slowdown in demand from borrowers, overall credit growth moderated in the third quarter of the current financial year. Public sector banks, at 12 percent, were marginally ahead of private banks, which saw an 11 percent year-on-year growth in loans.
Bank credit growth (y-o-y) decelerated to 11.8 percent in December 2024 from 12.6 percent in September 2024, while aggregate deposits increased at a marginally lower pace of 11 percent compared to the 11.7 percent growth in the July-September period. Personal loans, which hold a large share (31.5 percent) of total credit, recorded a moderation in annual growth, slowing to 13.7 percent (down from 15.2 percent a quarter ago), according to the RBI's data on 'Outstanding Credit of Scheduled Commercial Banks – December 2024'.
Credit to agriculture and industry sectors also showed signs of tempering in growth.
“Weakness is seen across segments, barring mid-sized loans. Corporate capex-led demand appears to be quite limited. The deceleration in loan growth appears to have multiple arguments, with lenders working through their liability-side challenges and weaker demand for loans from borrowers,” said Kotak Institutional Equities in a report.
Slower credit growth prompted the central bank to partially reverse the tighter rules for bank loans to small borrowers and non-bank lenders on Tuesday. The RBI trimmed risk weight requirements for banks on consumer microfinance loans by 25 percentage points to 100 percent. The central bank had, in 2023, increased the risk weights for banks and NBFCs—essentially the capital that banks need to set aside for every loan—by 25 percentage points to 125 percent on retail loans, amid concerns over a surge in small personal loans.
While certain categories, like housing loans, had been excluded from the increased capital requirement at the time, microfinance loans were not. In a separate statement on Tuesday, the central bank also said it was restoring risk weights applicable on banks' exposure to non-bank lenders based on their credit ratings.
In November 2023, the RBI had raised the risk weight for non-bank finance companies by 25 percentage points if their external rating required banks to set aside less than 100 percent in risk capital. The reversal of these rules follows the central bank's decision to defer proposals to increase the capital that banks set aside for new project loans and the liquidity they hold for digital deposits.
