Non-food credit, accounting for 99.9% of the share of the total credit, recorded a growth of 20.2%, YoY, at Rs 16411581 crore as on 22 March 2024 as against a rise of 20.6% fortnight ago and 15.4% rise a year ago. Food credit moved up 16.0% to Rs 23081 crore as on 22 March 2024.

The overall credit-deposit ratio improved on sequential basis to 80.3% as on 22 March 2024 from 80.2% a fortnight ago, while jumped from 75.8% in March 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 20.5% in February 2024 over a year ago, showing acceleration in growth compared with 15.9% increase in February 2023. The credit to agriculture sector accounting for 12.6% of total bank credit, expanded at an improved pace of 20.1% in February 2024 from 15.0% growth in February 2023.

The credit growth to the industry accounting for 22.6% of total bank credit, increased 9.1% in February 2024 compared with 6.8% growth in February 2023. Within the industrial segment, the advances to large industry rose 7.1%, while credit to medium industry moved up 12.5% in February 2024. The credit for the micro and small industry increased 14.7% compared with 12.8% growth in February 2023.

Credit growth to the services sector accounting for 26.9% of total bank credit, has accelerated to 24.0% in February 2024 compared with an increase of 20.5% in February 2023. The services sector credit growth is driven by acceleration in credit growth for other services at 43.8%, commercial real estate 37.9%, wholesale trade (other than food procurement) 21.9% and transport operators 23.7%, while credit growth has also improved for aviation to 58.5%, tourism, hotels and restaurants 12.0%, professional services 19.6% and computer software 14.5%. However, the services credit growth for NBFCs decelerated to 14.7% and retail trade 14.9%, while the credit to shipping declined 5.7% in February 2024.

Personal loans accounting for 32.5% of total bank credit, increased at an accelerated pace of 28.3% in February 2024, as against an increase of 20.6% in February 2023. Among the major segments of personal loans, the credit for housing increased at improved pace of 36.7%, credit card outstanding 31.0% and education 23.4%. However, the credit growth has moderated for advances against fixed deposits to 5.6%, other personal loans 21.9%, vehicle loans 17.5%, loans against gold jewellery 15.4%, and consumer durables 14.7% in February 2024 from February 2023.

Priority sector loans accounting for 43.3% of total bank credit, increased at an accelerated pace of 18.5% in February 2024 compared with a 14.0% growth in February 2023. Among priority sector loans, the credit growth for Micro & Small Enterprises improved to 20.3%, Agriculture & Allied Activities 19.2% and Housing 21.6%, while credit to Weaker Sections eased to 16.3%.

Industrial credit growth

Credit to the industrial sector accounting for 22.6% of the total banking sector credit increased 11.5% in February 2024 compared with a rise of 7.0% in February 2023. As per industry-wise classification, the segments showing negative credit growth were petroleum, coal & nuclear fuels at (-) 5.9% and mining & quarrying (incl. coal) at (-) 2.9%. However, the credit growth has moderated for basic metal & metal product (14.9% from 19.7%) and cement & cement products (11.9% from 14.6%).

On the other hand, the credit growth has accelerated for infrastructure (8.6% from 0.6%), textiles (17.6% from 0.3%), other industries (12.9% from 2.9%), all engineering (15.7% from 6.7%), construction (14.0% from 2.7%) and gems &jewellery (11.5% from -3.0%).

The credit growth has also moved up for food processing (11.9% from 5.8%), rubber, plastic & their products (17.1% from 10.0%), chemicals & chemical products (16.0% from 15.2%) and beverage & tobacco (35.1% from 23.8%).

Further, the credit growth has improved for vehicles, parts & transport equipment (14.7% from 12.1%), paper & paper products (11.2% from 5.6%), glass & glassware (46.9% from 37.7%), wood & wood products (24.0% from 20.0%) and leather & leather products (9.2% from 1.5%), end February 2024 over February 2023.

Aggregate deposits

Aggregate deposits growth of the scheduled banks improved on sequential basis to 13.5% YoY at Rs 20475254 crore as on 22 March 2024, compared with 13.1% growth a fortnight ago and jumped from 9.6% rise a year ago. The time deposits of the banks moved up 13.7% at Rs 18031397 crore, while the demand deposits increased 12.1% to Rs 2443857 crore as on 22 March 2024.

Investments of the banking sector

The banks investment in government and other approved securities that qualify for treatment of statutory liquidity ratio increased 12.8% YoY to Rs 6104731 crore as on 22 March 2024, showing deceleration in growth from 13.3% increase a fortnight ago. The banks investment had moved up 14.5% at end March 2023 over March 2022.

The investment-deposit ratio decelerated on sequential basis to 29.8% as on 22 March 2024 from 29.9% a fortnight ago, while eased from 30.0% end March 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 sector has continued to post healthy earnings show with strong return ratios supported by low credit cost. The asset quality has continued to improve to one of the best levels. The loan growth is strong across the segments despite high base. The deposit growth has also improved in Q4FY2024. The deposit growth has been supported by strong term deposits growth. The banking sector has continued to witness pressure on low cost Casa deposits with tight liquidity conditions and high term deposit rates.

The banking sector is witnessing pressure on margins which is impacting NII growth. The rising cost of deposits, repricing of deposits and tight liquidity conditions is mainly further the margins. NII growth is likely to moderate sharply in Q4FY2024 on account of high base and record high base 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 is likely to 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.