Banks’ credit growth moderated sharply by 9 per cent year-on-year (y-o-y) to ₹182.87 lakh crore for the fortnight ended May 30, lowest in the last three years and from 10 per cent growth registered in the previous fortnight, according to Reserve Bank of India (RBI) data.
“Systemic credit growth has declined sharply to 8.97 per cent y-o-y for the fortnight ended 30th May 25, lowest amongst the past 3 years (previous fortnight at 9.8 per cent y-o-y). Systemic deposit growth has stood at 9.9 per cent y-o-y (previous fortnight print at 10 per cent y-o-y),” brokerage Motilal Oswal said, adding that deposit growth now stands 100 basis points (bps) higher than credit growth after trailing behind significantly over the recent years, which resulted in significant concerns and regulatory watch on banks’ credit-deposit ratio as well.
According to bankers, the slower credit growth is on account of a generalised slowdown in demand, lenders being cautious on growing their unsecured loan book and subsequent tightening their credit filters, especially for risky profile borrowers.
“There has been a generalised slowdown in various income groups, this factor along with inflation has lowered the disposable income growth in last 1.5-2 years. Borrowers have increased leverage after revenge spending post pandemic. A lot of people used micro loans to add to their funding, via their spouses. This funding avenue has now dried down,” a senior banker said.
With deposit growth outpacing credit growth, the credit-deposit ratio of banking system has moderated to 78.9 per cent as on May 30 from 79.6 per cent in the previous fortnight. Incremental credit-deposit ratio over the year period has also declined sharply to 72.2 per cent versus 98.8 per cent a year back.
“The deceleration in credit growth has been sharp over the past one year, as lenders are prioritising asset quality amid higher delinquencies in unsecured retail, MFI while continuously tightening the underwriting standards. We currently estimate credit growth to remain modest at 11.5 per cent y-o-y for FY26E and recovering thereafter to 13 per cent in FY27E,” Motilal Oswal said.