Indian banks loan growth continued to decelerate in December 2024, marking the sixth consecutive month of slower expansion. Data from the Reserve Bank of India (RBI) revealed that year-on-year credit growth stood at 12.4% last month. This was a decrease from 15.6% in December 2023, even when excluding the impact of HDFC Bank’s merger with its parent company, Housing Development Finance Corporation (HDFC). Including the merger, the loan growth for December 2024 was 11.2%, compared to 20% in the same month the previous year. This consistent drop reflects the ongoing […]
Indian Banks Loan Growth Declines for 6th Consecutive Month Due to Stricter Regulations
Indian banks loan growth continued to decelerate in December 2024, marking the sixth consecutive month of slower expansion. Data from the Reserve Bank of India (RBI) revealed that year-on-year credit growth stood at 12.4% last month. This was a decrease from 15.6% in December 2023, even when excluding the impact of HDFC Bank’s merger with its parent company, Housing Development Finance Corporation (HDFC).
Including the merger, the loan growth for December 2024 was 11.2%, compared to 20% in the same month the previous year. This consistent drop reflects the ongoing effects of the RBI’s stricter lending norms on unsecured loans.
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The slowdown can largely be attributed to the RBI’s heightened capital requirements for personal loans, credit cards, and loans to non-banking finance companies (NBFCs). These regulatory measures have prompted banks to scale back lending in riskier, unsecured credit segments, including personal loans and credit cards.
The personal loan segment saw growth slow to 14.9% in December 2024, down from 17.6% the previous year. Similarly, the growth in outstanding credit card debt fell sharply to 15.6%, a significant drop from 32.6% in December 2023. These changes are a direct result of the RBI’s intervention to curb the potential for bad loans.
Credit growth in the services sector also faced a decline in December, dropping to 11.7% from 23.3% in the previous year. The primary factor behind this slowdown was weaker credit expansion to NBFCs, a crucial segment in the financial services industry. The tightening of credit to NBFCs has had a broad impact on service sector lending.
In addition to the RBI’s regulatory measures, Indian banks are actively scaling back loan growth to improve their credit-deposit ratio. The credit-deposit ratio is a critical metric used to assess a bank’s liquidity position. With a growing focus on raising deposits, banks are becoming more cautious in lending, further dampening loan growth.
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Loans to industrial sectors grew at a slower pace of 7.2% in December 2024, compared to 8% in the same month last year. This modest growth highlights a broader trend of slower credit expansion across various sectors, as banks prioritize liquidity and risk management.
Indian banks have enjoyed double-digit loan growth for several years, driven by a surge in retail credit, particularly unsecured loans. However, the RBI’s intervention in late 2023 to curb excessive risk-taking has made a significant impact on the overall loan growth trajectory. As banks adjust to the new regulatory landscape, the focus is shifting from aggressive lending to prudent growth and liquidity management.
The slowdown in credit growth also reflects broader economic conditions and the ongoing recalibration of the banking sector’s risk appetite. While the regulatory measures are aimed at ensuring long-term financial stability. They have led to short-term challenges for banks in achieving the same levels of loan growth seen in previous years.
As tighter lending standards continue to affect loan growth, Indian banks are navigating a period of transition. While the short-term effects are clear in slower loan expansion. These measures are ultimately intended to reduce the risk of bad loans and strengthen the financial system for the future.
