Gross bank credit offtake (ex-HDFC merger basis) witnessed an increase of 16.1% in May 2024, higher by 70 bps on a y-o-y basis.
The services sector experienced strong credit growth of 20.7% y-o-y in May 2024, slightly lower than the 21.3% recorded in May 2023. This growth was bolstered by increased credit in segments such as commercial real estate, transport operators, and professional services. However, credit growth to non-banking financial companies (NBFCs) decelerated compared to the previous year, according to a CareEdge report.
Industry segment exhibited a growth of 8.9% y-o-y in May 2024 compared to 6.0% in May 2023, led by growth in Micro, Small & Medium Enterprises (MSME) lending and growth in sectors like infrastructure and textiles.
Meanwhile, the personal loans segment growth rate reduced by around 130 bps (from 19.1% for the same period last year) to 17.8% in May 2024. Credit housing, the largest segment within personal loans, saw an acceleration, indicating sustained demand in the housing market.
Banks’ o/s credit exposure to NBFCs stood at Rs 15.7 lakh crore as of May 2024, indicating a 16.0% y-o-y growth that is approximately half of the growth rate reported in May 2023 indicating a slower increase in comparison.
Meanwhile, on a month-on-month (m-o-m) basis, the amount rose by 0.9%. This growth has been despite the reclassification of HDFC’s exposures following its merger with HDFC Bank. Further, if we exclude the merged entity from the base data, the growth would have been higher at 26.0%. This adjustment offers a clearer view of the underlying growth trend.
NBFC exposure
Meanwhile, the proportion of NBFC exposure in relation to aggregate credit has marginally reduced from 9.6% in May 2023 to 9.3% in May 2024. Additionally, the reported growth rate of advances to NBFCs has been below the overall bank credit growth since December 2023. This can be attributed to regulatory actions, base effect (HDFC’s numbers are excluded in May 2024, but included in May 2023 data) and capital market borrowings.
Commercial real estate rose by 45.3% y-o-y in May 2024 and sped up further on a low base, merger impact and continued robust demand. CRE forms only 2.9% of the banking system’s gross advances. Meanwhile, without considering the merger, the growth remained strong at 26.0% y-o-y vs. 6.9% y-o-y in May 2023.
The growth rate of trade decelerated in May 2024 to 17.7% from 18.5% in May 2023. Within Trade, retail trade grew at a slower 17.1% in May 2024 compared to 22.8% in May 2023. The growth in services was also led by 32.3% y-o-y growth in ‘other services’. Even if we exclude the merger impact, other services rose by 29.8% y-o-y in May 2024 compared to 25.7% in May 2023.
The driving factors
According to RBI’s Financial Stability Report (FSR) for June 2024, credit offtake has continued to rise due to economic demand conditions and is primarily driven by services and personal loans. Further, personal loans accounted for over half of private sector banks’ credit growth. Bank credit is expected to remain positive, supported by economic expansion, increased capital expenditure, and retail credit growth. CareEdge estimates that the credit offtake would be in the range of 14%-14.5% during FY25. Anticipated broad-based growth across segments, with personal loans likely to outperform industry and service sectors. Medium-term prospects seem promising, with reduced corporate stress and sufficient provision buffer. Further ebbing inflation could also reduce the working capital demand. However, elevated interest rates and global uncertainties could adversely impact credit growth.
