Scheduled commercial banks’ (SCBs) non-food credit growth declined to 15.0 per cent year-on-year (y-o-y) in August 2023 as compared with 16.0 per cent a year ago due to deceleration in credit demand from industry and personal loans. According to RBI’s data on sectoral deployment of bank credit, credit to industry registered a lower growth of 6.1 per cent y-o-y in August 2023 as compared with 11.4 per cent in August 2022.

Among major industries, credit growth (y-o-y) to ‘basic metal & metal products’ and ‘textiles’ accelerated in August 2023 as compared with the corresponding month of the previous year, while that to ‘chemicals and chemical products’, ‘food processing’ and ‘infrastructure’ decelerated, RBI said in a statement.

Personal loans growth decelerated to 18.3 per cent y-o-y in August 2023 (19.4 per cent a year ago), due to moderation in credit to housing.

Credit growth to agriculture and allied activities improved to 16.6 per cent y-o-y in August 2023 from 13.4 per cent a year ago.

Credit growth to services sector accelerated to 20.7 per cent y-o-y in August 2023 from 17.4 per cent a year ago, primarily due to ‘Non-Banking Financial Companies (NBFCs)’ and ‘commercial real estate’.

Bank credit growth likely to moderate

Meanwhile, Crisil Ratings, in a report, observed that after clocking a robust 15.9 per cent growth last fiscal on a broad-based economic recovery, stronger and cleaner balance sheets, and the lower base of the preceding two fiscals, bank credit growth is likely to moderate to 13-13.5 per cent this fiscal and improve a tad to 13.5-14 per cent in FY25 as economic growth picks up.

A key monitorable which will determine credit growth going forward is the extent to which deposit growth picks up for banks, it added.

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According to the rating agency, credit growth will moderate this fiscal due to four key reasons, including an expected decline in gross domestic product (GDP) growth this fiscal to 6 per cent year-on-year from 7.2 percent last fiscal, impacting overall credit growth and easing of inflation with some softening in commodity prices.

“A significant part of growth in wholesale credit (comprising corporates and micro, small and medium enterprises, or MSMEs) last fiscal was driven by higher working capital demand in a high-inflation environment. Going forward, inflation levels are expected to be lower than that seen last fiscal,” it said .

Crisil Ratings said that bond market issuances have been robust in the first half of this fiscal with the change in interest rate environment. Consequently, bank credit’s substitution of debt capital markets, which also supported wholesale credit growth last year, especially in the first half, is not being seen to the same extent this year.

Given the strong growth in fiscal 2023, especially in the second half, the high-base effect will also be a factor, the agency said.

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Within overall bank credit, Crisil assessed that the growth in wholesale credit (about 60 per cent of overall credit) is likely to slow to 11-11.5 per cent this fiscal from a decadal high of 15 per cent. On the other hand, retail credit (about 28 per cent of overall credit), is expected to continue to grow at a healthy clip of 19-20 per cent, similar to last fiscal

Krishnan Sitaraman, Senior Director and Chief Ratings Officer, Crisil Ratings, said, “In FY25, overall credit growth trends should see a turnaround and start inching up on the back of an expected improvement in GDP growth to 6.9 per cent.

“Within this, wholesale credit growth is likely to see a modest increase to 11.5-12 per cent, while retail should remain the key growth driver, expanding steadily at 19-20 per cent. Agriculture credit growth should remain range-bound at 9-10 per cent.”