Bank credit growth moderated to 16.2 per cent year-on-year (y-o-y) in January 2024 against 16.7 per cent a year ago due to relatively soft growth in credit to industry, services and personal loans sectors.

Agriculture and allied activities was the only sector that showed improvement in credit growth to 20.1 per cent y-o-y in January 2024 from 14.4 per cent a year ago, per RBI data on Sectoral Deployment of Bank Credit.

Credit to industry grew by 7.8 per cent y-o-y in January 2024 as compared with 8.7 per cent in January 2023.

“Among major industries, growth in credit (y-o-y) to ‘food processing’ and ‘textiles’ accelerated in January 2024 as compared with the corresponding month of the previous year, while that to ‘basic metal & metal products’ and ‘chemicals & chemical products’ decelerated,” RBI said.

Credit growth to the services sector moderated to 20.7 per cent y-o-y in January 2024 vs 21.4 per cent a year ago.

“Among major contributors, growth in credit (yoy) to ‘trade’ improved while that to ‘non-banking financial companies (NBFCs)’ decelerated in January 2024 compared to January 2023,” the central bank said.

Personal loans growth moderated to 18.4 per cent (y-o-y) in January 2024 (20.7 per cent a year ago) due to decelerated growth in vehicle and other personal loans.

“In recent times, bank credit has undergone compositional shifts, with an increasing proportion of credit going to services and the retail sector. Over the past two years, banks and NBFCs have seen rapid and persistent growth in retail loans, especially unsecured lending,” per RBI’s latest financial stability report.

Between September 2021 to September 2023, banks’ retail loans grew at a compound annual growth rate (CAGR) of 25.5 per cent, which exceeded the headline credit growth of 18.6 per cent. Consequently, the share of retail lending in gross advances increased from 37.7 per cent in September 2021 to 42.2 per cent in September 2023.

Alongside, unsecured retail lending grew by 27.0 per cent during the same period, taking its share in total retail lending to 23.3 per cent (9.83 per cent of total gross advances of the banks).

“Although there are no imminent signs of stress in the retail credit segment, its rapid growth amidst the disinflationary monetary policy stance raises concerns in terms of procyclicality of lending and higher debt servicing costs,” the report said.