The growth of personal loans by banks slowed to 17.7 percent year-on-year in March 2024, down from 21 percent a year earlier, according to recent data from the Reserve Bank of India (RBI). This decline was primarily attributed to slower growth in vehicle loans and unsecured loans, reflecting the impact of RBI’s increased risk weight directives issued in November last year.
In response to concerns over rising personal loan volumes, the RBI mandated banks and non-banking financial companies (NBFCs) to reserve additional capital for risk weights on unsecured loans, credit cards, and lending to NBFCs. This included a 25 percentage point increase in the mandatory risk weight requirement.
Overall, non-food bank credit recorded a growth of 16.3 percent during March 2024, compared to 15.4 percent a year ago, according to the RBI’s sectoral deployment of bank credit data. Credit expansion to the services sector improved to 20.2 percent in March 2024 from 19.6 percent a year earlier, with notable growth observed in credit extended to ‘transport operators’ and ‘commercial real estate’.
Other sectors
Credit growth to agriculture and allied activities surged to 20.1 percent year-on-year in March 2024, up from 15.4 percent in the previous year, reflecting sustained demand from these sectors. Similarly, credit to the industry sector showed an uptick, growing by 8.5 percent year-on-year in March 2024 compared to 5.6 percent in March 2023.
Among major industries, credit growth was particularly notable in ‘chemicals & chemical products’, ‘food processing’, and ‘infrastructure’ sectors, while growth moderated in ‘basic metal & metal products’.
The moderation in personal loans growth, alongside improvements in credit to key sectors such as agriculture, industry, and services, reflects the evolving credit landscape influenced by regulatory measures and sector-specific demands. The central bank’s strategic interventions aimed at managing risk and ensuring sectoral stability continue to shape the credit dynamics in India’s banking sector.
