Non-food credit, accounting for 99.7% of the share of the total credit, recorded a growth of 20.0%, YoY, at Rs 16100601 crore as on 09 February 2024 as against a rise of 19.6% fortnight ago and 15.9% rise a year ago. Food credit increased 31.7% to Rs 46442 crore as on 09 February 2024.

The overall credit-deposit ratio was steady on sequential basis at 80.0% as on 09 February 2024 from 80.0% a fortnight ago, while jumped from 75.3% in February 2023 with the faster growth in advances.

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 incerased 20.4% in January 2024 over a year ago, showing acceleration in growth compared with 16.7% increase in January 2023. The credit to agriculture increased at improved pace of 20.1% in January 2024, showing acceleration from 14.4% growth in January 2023. Meanwhile, the credit growth to the industry rose 8.3% in January 2024 compared with 8.7% growth in January 2023. Within the industrial segment, the advances to large industry rose 6.2%, while credit to medium industry moved up 10.0% in January 2024. The credit for the micro and small industry increased 16.3% compared with 15.4% growth in January 2023.

Credit growth to the services sector has acclerated to 23.9% in January 2024 compared with an increase of 21.4% in January 2023, driven by acceleration in credit growth for other services at 40.7%, commercial real estate 36.3%, wholesale trade (other than food procurement) 19.4% and transport operators 25.3%, while credit growth has also improved for aviation to 62.0%, tourism, hotels and restaurants 14.0%, professional services 22.8% and computer software 10.8%. However, the services credit growth for NBFCs decelerated to 15.6% and retail trade 16.1%, while the credit to shipping declined 7.8% in January 2024.

Personal loans increased at an accelerated pace of 28.8% in January 2024 as against an increase of 20.7% in January 2023. Among the major segments of personal loans, the credit for housing increased at improved pace of 37.2%, education 22.9%, credit card outstanding 31.3%, and loans against gold jewellery 17.4%. However, the credit growth has moderated for vehicle loans to 16.3%, advances against fixed deposits 5.7%, other personal loans 23.3%, and consumer durables 14.4% in January 2024 from January 2023.

Priority sector loans growth improved to 20.1% in January 2024 compared with a 15.6% growth in January 2023. Among priority sector loans, the credit growth for Micro & Small Enterprises improved to 21.1%, Agriculture & Allied Activities 20.2% and Housing 22.7%, while credit to Weaker Sections eased to 21.4%.

Industrial credit growth

Credit to the industrial sector accounting for 22.8% of the total banking sector credit increased 11.1% in January 2024 compared with a rise of 8.7% in January 2023. As per industry-wise classification, the segments showing negative credit growth were petroleum, coal & nuclear fuels at (-) 12.4% and mining & quarrying (incl. coal) at (-) 4.0% in January 2024.

However, the credit growth has moderated for basic metal & metal product (14.7% from 22.0%) and chemicals & chemical products (13.5% from 17.6%). On the other hand, the credit growth has accelerated for infrastructure (7.8% from 2.3%), textiles (17.7% from 0.8%), construction (18.0% from -0.6%), food processing (15.3% from 4.7%), all engineering (17.0% from 6.2%) and gems & jewellery (12.9% from -3.4%).

The credit growth has also moved up for other industries (13.0% from 8.9%), beverage & tobacco (39.9% from 18.6%), rubber, plastic & their products (17.1% from 12.9%) and vehicles, parts & transport equipment (14.4% from 11.4%). Further, the credit growth has improved for glass & glassware (51.2% from 33.0%), wood & wood products (27.3% from 19.0%), paper & paper products (9.8% from 6.8%), cement & cement products (13.8% from 12.3%) and leather & leather products (7.3% from 3.4%), end January 2024 over January 2023.

Aggregate deposits

Aggregate deposits growth of the scheduled banks increased to 13.1% YoY at Rs 20195386 crore as on 09 February 2024, compared with 12.9% growth a fortnight ago and 10.1% rise a year ago. The time deposits showed an increase of 13.8% at Rs 17876117 crore, while the demand deposits increased 7.8% to Rs 2319268 crore as on 09 February 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 6053897 crore as on 09 February 2024, showing acceleration in growth from 13.4% increase a fortnight ago.

The banks investment had moved up 14.3% in February 2023. The investment-deposit ratio rose to 30.0% as on 09 February 2024 from 29.8% a fortnight ago, while moved up from 29.9% in February 2023 with the faster growth in investments. The investment-deposit ratio is much higher above the Statutory Liquidity Ratio of 18.0%.

Outlook

The banking sector has continued to post healthy earnings show with strong return ratios for Q3FY2024. The credit cost remained substantially low, while the asset quality continued to improve to one of the best levels. The loan growth is strong across the segments despite high base. The recent hike in risk weights for unsecured consumer credit, credit cards receivables and non-priority NBFCs had some impact on credit growth and capital ratios. Reflecting the impact of risk weights hike, an average CRAR of banking sector declined 79 bps in Q3FY2024 with 57 bps fall for PSBs and 89 bps dip for PVBs.

The deposit growth has eased to 14.0% end December 2023 from 14.4% end September 2023. The Casa deposits growth was steady at 6% and term deposits growth moderated to 19% from 21% in the previous quarter. The banking sector would continue to witness pressure on low cost Casa deposits with tight liquidity conditions and high term deposit rates.

The banking sector has continued to witness pressure on margins in Q3FY2024, while the margins declined over a year ago sharply impacting NII growth. The margins would continue to witness pressure from rising cost of deposits, repricing of deposits and tight liquidity conditions. NII growth would be moderate sharply in Q4FY2024 on account of high base and record high margins for Q4FY2023.

The core fee income and treasury income has been healthy in 9MFY2024. The core fee income may remain steady with stable business activity. Further, the decline in Gsec yield in Q4FY2024 with expectation of policy rate cuts in H2FY2025 and decline in inflation would support treasury gains and may also lead to write back of provision 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 fresh slippage of loans is likely to remain under control, despite some concerns for asset quality in the unsecured loan segment. The banks have also built strong PCR and healthy contingency provision buffers.

With loan growth, asset quality, credit cost at best levels, there are limited levers for strong earnings growth ahead. The high risk weights and elevated credit-deposit ratios for PVBs and tight liquidity conditions may weigh on credit growth. The bank may also face challenges from elevated interest rate from any delay in reduction in RBI policy rates.