 "Services, retail credit growth moderate in Aug on drop in credit to NBFCs")
The growth in bank credit to the services sector moderated to 15.6 per cent year-on-year (Y-o-Y) in August 2024, down from 21 per cent a year ago, largely due to a considerable decline in credit to non-banking financial companies (NBFCs).
Retail loan growth also slowed to 16.9 per cent Y-o-Y in August 2024, compared to 18.3 per cent in August 2023, according to Reserve Bank of India (RBI) data.
Credit to NBFCs grew by 11.9 per cent Y-o-Y in August 2024, sharply down from 21.3 per cent a year ago. Credit to trade declined to 15.5 per cent from 17.4 per cent in August 2023.
The RBI data indicated that outstanding bank credit to finance companies has been shrinking over the past four months, declining from Rs15.58 trillion in May 2024 to Rs15.22 trillion in August 2024.
NBFCs are increasingly seeking alternative funding sources beyond traditional bank loans. They are exploring routes such as non-convertible debentures, commercial papers, foreign currency borrowings, and securitisation to sustain their growth, according to a report by CRISIL Ratings.
This shift follows the imposition of higher risk weights on bank lending to higher-rated NBFCs last year, making bank loans less readily available.
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Regarding retail credit growth, RBI data showed that growth in the other personal loan category, which consists mainly of unsecured credit, fell sharply to 13.2 per cent Y-o-Y in August 2024, down from 23.7 per cent in August 2023. The pace of growth in credit card outstanding also decreased to 19.9 per cent from 31.4 per cent during this period.
However, credit growth to housing, the largest segment, accelerated to 18.8 per cent Y-o-Y from 13.4 per cent Y-o-Y. The credit growth numbers exclude the impact of the merger of HDFC with HDFC Bank.
The RBI, in its statement, noted that non-food credit grew by 15 per cent in August 2024, matching the level recorded a year ago. Credit to industry strengthened to 9.8 per cent Y-o-Y in August 2024, compared to 5.3 per cent a year ago. There was an improvement in credit to large industries, rising to 7.7 per cent in August this year from 4.3 per cent a year ago.