Non-food credit, accounting for 99.8% of the share of the total credit, recorded a growth of 19.6%, YoY, at Rs 16567240 crore as on 17 May 2024 as against a rise of 19.1% fortnight ago and 15.5% rise a year ago.

Food credit moved up 13.5% to Rs 41273 crore as on 17 May 2024. The overall credit-deposit ratio improved on sequential basis to 79.8% as on 17 May 2024 from 79.5% a fortnight ago, while jumped from 75.2% 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 19.1% in April 2024 over a year ago, showing acceleration in growth compared with 16.2% increase in April 2023. The credit to agriculture accounting for 12.8% of total bank credit, expanded at an improved pace of 19.7% in April 2024 from 16.8% growth in April 2023. Meanwhile, the credit growth to the industry accounting for 22.2% of total bank credit, increased 7.4% in April 2024 compared with 7.2% growth in April 2023. Within the industrial segment, the advances to large industry rose 4.7%, while credit to medium industry moved up 13.3% in April 2024. The credit for the micro and small industry increased 15.6% compared with 9.8% growth in April 2023.

Credit growth to the services sector accounting for 27.8% of total bank credit, has accelerated to 21.7% in April 2024 compared with an increase of 21.3% in April 2023, driven by acceleration in credit growth for other services at 37.6%, commercial real estate 35.3%, professional services 24.3% and wholesale trade (other than food procurement) 16.4%, while credit growth has also improved for aviation to 52.4%, tourism, hotels and restaurants 10.6%, shipping 2.4% and transport operators 19.6%. However, the services credit growth for NBFCs decelerated to 14.6% and retail trade 13.7%, while credit to computer software declined 0.3% in April 2024.

Personal loans accounting for 32.5% of total bank credit, increased at an accelerated pace of 27.1% in April 2024 as against an increase of 19.4% in April 2023. Among the major segments of personal loans, the credit for housing increased at improved pace of 36.9%, education 22.8%, and advances to individuals against share, bonds, etc. 17.8%. However, the credit growth has moderated for other personal loans to 19.2%, advances against fixed deposits 7.8%, vehicle loans 16.9%, credit card outstanding 23.0%, and loans against gold jewellery 12.0% in April 2024 from April 2023.

Priority sector loans accounting for 42.7% of total bank credit, increased at an accelerated pace of 18.4% in April 2024 compared with a 10.2% growth in April 2023. Among priority sector loans, the credit growth for Micro & Small Enterprises improved to 18.6% and Agriculture & Allied Activities 19.9%, while credit to Housing expanded 20.5% and Weaker Sections 16.2%.

Industrial credit growth

Credit to the industrial sector accounting for 22.2% of the total banking sector credit increased 8.5% in April 2024 compared with a rise of 7.0% in April 2023. As per industry-wise classification, the segments showing negative credit growth were petroleum, coal & nuclear fuels at (-) 7.4%, other industries at (-) 4.0% and mining & quarrying (incl. coal) at (-) 8.7%.

However, the credit growth has moderated for basic metal & metal product (11.4% from 19.2%), cement & cement products (2.4% from 20.9%) and wood & wood products (19.5% from 21.6%). On the other hand, the credit growth has accelerated for leather & leather products (6.2% from 2.8%), beverage & tobacco (30.7% from 33.8%), construction (8.6% from 7.4%) and paper & paper products (8.4% from 4.8%).

The credit growth has also moved up for glass & glassware (57.0% from 33.9%), rubber, plastic & their products (13.0% from 9.6%), vehicles, parts & transport equipment (12.5% from 9.8%) and gems & jewellery (7.2% from 0.0%). Further, the credit growth has improved for all engineering (11.4% from 6.0%), textiles (9.4% from 4.3%), food processing (17.4% from 2.7%), chemicals & chemical products (17.5% from 4.8%) and infrastructure (8.5% from 1.7%), end April 2024 over April 2023.

Aggregate deposits

Aggregate deposits growth of the scheduled banks decelerated on sequential basis to 13.3% YoY at Rs 20814092 crore as on 17 May 2024, compared with 13.3% growth a fortnight ago and jumped from 11.4% rise a year ago. The time deposits of the banks moved up 13.2% at Rs 18406774 crore, while the demand deposits increased 13.5% to Rs 2407318 crore as on 17 May 2024.

Investments of the banking sector

The banks investment in government and other approved securities that qualify for treatment of statutory liquidity ratio increased 11.7% YoY to Rs 6198573 crore as on 17 May 2024, showing deceleration in growth from 12.9% increase a fortnight ago. The banks investment had moved up 14.8% in March 2023.

The investment-deposit ratio improved on sequential basis to 29.8% as on 17 May 2024 from 29.6% a fortnight ago, while eased from 30.0% in 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 credit growth and strong earnings 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 been healthy in Q4FY2024, but below credit growth leading to increase in credit deposit ratio for the banking sector. The deposit growth has been supported by strong term deposits growth.

The banking sector is witnessing pressure on margins which is impacting NII growth. However, the banking sector has witnessed some improvement low cost Casa deposits in Q4FY2024 after decline for last many quarters. The repricing of the deposits is also almost complete after hike in policy repo rate since May 2022. Thus, the pressure on cost of deposits has moderated with continuous status quo on policy rates by the RBI.

The core fee income and treasury income has been healthy in Q4FY2024. The core fee income may remain steady with stable business activity. The 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 stable 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.