Mumbai: Bank Credit Growth Slows Significantly

Bank credit growth has experienced a notable decline, dropping to 11.1% as of November 15, 2024, compared to 20.6% last year. Even after adjusting for the HDFC-HDFC Bank merger, the growth remains slower at 12.4% versus 16.2% in 2023.

Additionally, there has been a slowdown in deposit growth, albeit to a lesser extent. Compared to 13.6% deposit growth in the 12 months leading to November 15, 2023, the year-on-year deposit growth as of November 15, 2024 stood at only 11.2%. Aggregate deposits of the banking system stood at Rs 218.5 lakh crore, a 6.7% increase over end-March numbers, according to RBI data.

Banks have added over Rs 13.8 lakh crore of deposits between April-November 15, 2024. The year-to-date deposit growth is slower than last year's 8.9%, when banks had added another Rs 16.1 lakh crore in the first seven and a half months of FY25. Total bank loans stood at Rs 173.6 lakh crore as of November 15. Banks have added Rs 9.3 lakh crore of fresh loans in FY25 compared to Rs 19.5 lakh crore in the year-ago period.

Suresh Ganapathy, research analyst with Macquarie, noted that "Overall, credit growth has slowed from 16% last year to around 11% now. We believe credit growth drives GDP and not the other way around." With bank deposit growth slower than the rise in deposits, banks have begun liquidating their government bond portfolio. The outstanding stock of government securities with RBI has dipped by Rs 67,431 crore to Rs 64.4 lakh crore in the fortnight ended November 15.

Ganapathy further highlighted that "Everything is slowing... earlier, only unsecured loans were slowing... Now, the slowdown is spreading even to secured segments. Mortgage growth is down from 18% to 12%, auto loans - which includes all kinds of vehicle loans - are down from 20% last year to 11%, unsecured loan growth running at 25%+ last year is now down to 11%." In recent years, retail lending and loans to non-bank financial institutions have been a big driver of bank credit. However, growth in retail bank credit has eased from 16.3% in March 2024 to 13.4% in September and even further to 12.9% in October. Bank loans to NBFCs have shrunk by 0.7% to Rs 1.5 lakh crore during the first seven months of the financial year.