Non-food credit, accounting for 99.7% of the share of the total credit, recorded a growth of 19.6%, YoY, at Rs 15999075 crore as on 26 January 2024 as against a rise of 20.4% fortnight ago and 16.7% rise a year ago. Food credit increased 3.0% to Rs 45619 crore as on 26 January 2024.

The overall credit-deposit ratio moved up on sequential basis to 80.0% as on 26 January 2024 from 79.5% a fortnight ago, while jumped from 75.3% in January 2023 with the faster growth in deposits.

Sectoral deployment of bank credit

As per the data on sectoral deployment of bank credit as released by the Reserve Bank of India (RBI), non-food bank credit increased 20.1% in December 2023 over a year ago, showing acceleration in growth compared with 15.3% increase in December 2022. The credit to agriculture increased at improved pace of 19.5% in December 2023, showing acceleration from 11.6% growth in December 2022. Meanwhile, the credit growth to the industry rose 8.6% in December 2023 compared with 8.6% growth in December 2022. Within the industrial segment, the advances to large industry rose 7.0%, while credit to medium industry moved up 8.7% in December 2023. The credit for the micro and small industry increased 15.1% compared with 13.9% growth in December 2022.

Credit growth to the services sector has accelerated to 22.9% in December 2023 compared with an increase of 19.4% in December 2022, driven by acceleration in credit growth for other services at 37.8%, commercial real estate 37.6%, wholesale trade (other than food procurement) 17.1% and transport operators 24.8%, while credit growth has also improved for tourism, hotels and restaurants to 14.4% and professional services 19.9%. However, the services credit growth for NBFCs decelerated to 15.1%, retail trade 17.2%, computer software 7.8% and aviation 55.6%, while the credit to shipping declined -10.3% in December 2023.

Personal loans increased at an accelerated pace of 28.5% in December 2023 as against an increase of 20.4% in December 2022. Among the major segments of personal loans, the credit for housing increased at improved pace of 35.6%, credit card outstanding 32.6%, education 21.9%, and loans against gold jewellery 18.6%. However, the credit growth has moderated for advances against fixed deposits to 6.7%, vehicle loans 20.5%, other personal loans 22.9%, and consumer durables 13.7% in December 2023 from December 2022.

Priority sector loans growth improved to 17.7% in December 2023 compared with a 12.5% growth in December 2022. Among priority sector loans, the credit growth for Micro & Small Enterprises improved to 20.4%, Agriculture & Allied Activities 17.6% and Housing 20.7%, while credit to Weaker Sections also moved up 16.4%.

Industrial credit growth

Credit to the industrial sector accounting for 23.0% of the total banking sector credit increased 8.6% in December 2023 compared with a rise of 8.6% in December 2022.

As per industry-wise classification, the segments showing negative credit growth were petroleum, coal & nuclear fuels at -18.7%.

However, the credit growth has moderated for chemicals & chemical products (9.5% from 15.9%), basic metal & metal product (14.9% from 19.1%), rubber, plastic & their products (6.0% from 15.1%) and infrastructure (5.8% from 6.1%). Further, the credit growth has also eased for mining & quarrying (incl. coal) (2.5% from 8.8%), vehicles, parts & transport equipment (8.0% from 10.4%), cement & cement products (10.9% from 12.0%), paper & paper products (4.4% from 4.9%) and leather & leather products (2.2% from 3.6%).

On the other hand, the credit growth has accelerated for other industries (23.2% from -5.8%), textiles (13.2% from 0.8%), construction (11.0% from 1.4%) and food processing (10.1% from 4.4%). Further, the credit growth has also improved for beverage & tobacco (38.4% from 16.8%), gems & jewellery (11.0% from 8.7%), glass & glassware (33.0% from 20.5%), all engineering (8.4% from 8.0%) and wood & wood products (19.4% from 17.4%), end December 2023 over December 2022.

Aggregate deposits

Aggregate deposits growth of the scheduled banks increased 12.9% YoY at Rs 20059197 crore as on 26 January 2024, compared with 13.7% growth a fortnight ago and 10.5% rise a year ago. The time deposits showed an increase of 12.9% at Rs 17704212 crore, while the demand deposits increased 12.6% to Rs 2354985 crore as on 26 January 2024.

Investments of the banking sector

The banks investment in government and other approved securities that qualify for treatment of statutory liquidity ratio jumped 13.4% YoY to Rs 5975351 crore as on 26 January 2024, showing deceleration in growth from 15.2% increase a fortnight ago. The banks investment had moved up 13.4% in January 2023.

The investment-deposit ratio was steady at 29.8% as on 26 January 2024 from 29.8% a fortnight ago, while rose from 29.3% in January 2023 with the faster growth in deposits. The investment-deposit ratio is much higher above the Statutory Liquidity Ratio of 18.0%.

Outlook

The banking loan growth is healthy across the segments. The recent hike in risk weights for unsecured consumer credit, credit cards receivables and non-priority NBFCs had moderate some impact on loan growth and loan pricing. The deposit growth is lagging the loan growth and remains far behind causing spike in credit deposit ratio. the deposits growth is also mainly driven by term deposits, while the low cost Casa deposits continues to be under pressure on account of high term deposit rates. The high terms deposit rates pressure on Casa deposits is likely to continue put pressure on net interest margins of the banking sector amid tight liquidity conditions.

The high operating expenses is causing some pressure for banking sector, which has caused spike in cost to income ratio and exerted pressure on operating profit. However, the decline in the g-sec yield in the quarter ended December 2023 and March 2024 would provide treasury gains and limit provision requirement for depreciation of investment book.

The asset quality and stressed asset level of the banking sector has continued improve with dip in fresh slippages of loans. The strong PCR levels and healthy contingency provision buffers have led to sharp decline in credit costs for banks. The fresh slippage of loans is likely to remain under control, despite some concerns for asset quality in the unsecured loan segment.