Credit growth to NBFCs declines to 7.8% in November, shows RBI data

Retail credit growth also declined to 16.3% due to drop in personal and vehicle loans, and rise in credit card outstanding

Growth in credit to the non-banking financial company (NBFC) sector plummeted to 7.8 per cent year-on-year (Y-o-Y) in the fortnight ending November 29, 2024, compared to a 19 per cent increase during the same period of 2023. This slowdown contributed to a decline in growth of credit to the services sector, which fell to 14.4 per cent from 22.2 per cent Y-o-Y, according to sectoral deployment data released by the Reserve Bank of India (RBI).

 

The slowdown in credit growth to the NBFC sector can largely be attributed to the RBI's decision in November last year to increase risk weights on bank funding to NBFCs. This move prompted the shadow banks to diversify their funding sources. Now, NBFCs have increasingly turned to the domestic capital market, raising funds through bonds, as well as the overseas market, tapping into dollar bonds and syndicated loans.

 

 

According to the RBI data, in absolute terms, credit to the NBFC sector at the fortnight ended November 29, 2024, stood at Rs 15.75 trillion, compared to Rs 15.48 trillion in the fortnight ended March 22, 2024.

 

The RBI in its recently released “trend and progress report” highlighted that NBFCs need to further diversify their sources of funding as a risk mitigation strategy, since their dependence on banks remains high despite some moderation in recent times.

 

“The reduction in NBFCs’ reliance on banks for funds bodes well for overall financial stability,” the RBI said in the report, adding that bank borrowings remain the primary source of funds for NBFCs.

 

Meanwhile, retail credit growth declined to 16.3 per cent Y-o-Y in the fortnight ended November 29, 2024, as compared with 18.7 per cent in the same period of 2023, largely due to drop in growth of personal loans and vehicle loans, and rise in credit card outstanding. However, housing – the largest constituent of this segment – recorded accelerated growth.

 

Data shows growth of vehicle loans halved to just 10.3 per cent Y-o-Y during this period compared to 20.6 per cent in the corresponding period a year ago. Similarly, growth of personal loans also slowed to 11.6 per cent compared to 24.9 per cent in the year-ago period.

 

Additionally, credit card outstanding grew by 18.1 per cent Y-o-Y to Rs 2.88 trillion at the end of November 2024. In the corresponding period of 2023, it stood at Rs 2.44 trillion, growing at 34.1 per cent Y-o-Y.

 

The moderation in overall retail credit growth is a result of the RBI's decision to increase risk weights on banks' credit to segments such as consumer durables and credit card receivables. This measure was aimed at addressing the build-up of risks associated with the high growth in these consumer credit segments. In response to the RBI's move, lenders have adjusted their growth strategies in these areas to mitigate stress, leading to a slowdown in credit growth in these segments.

 

Overall credit growth slowed down to 11.8 per cent in the fortnight ended November 29, 2024, as compared to 16.5 per cent for the corresponding fortnight of the previous year.

 

According to the RBI, during the period under review, credit to industry grew 8.1 per cent, compared to 5.5 per cent.

 

Among major industries, credit to chemicals and chemical products, infrastructure, petroleum, coal products and nuclear fuels, and all engineering recorded a higher growth, the RBI said.

 

Additionally, data shows that credit growth to "medium" industries increased to 20 per cent Y-o-Y, up from 12 per cent. For large industries, credit growth more than doubled to 6.1 per cent Y-o-Y, compared to just 2.9 per cent.