Loan growth at Indian banks moderated for an eighth straight month in February, central bank data showed on Thursday, due to a drop in personal and credit card loans following tighter rules by the Reserve Bank of India.<\/p>\n
The data showed that banks’ credit increased by 12% year-on-year last month, slower than the 16.6% rise a year earlier, excluding the impact of HDFC Bank’s merger with parent Housing Development Finance Corp.<\/p>\n
Including the merger impact, loans grew 11% in February, compared with 20.5% in the year-ago period.<\/p>\n
The loan growth rate slowed to 12.5% in January, excluding the merger, and to 11.4% including the merger.<\/p>\n
India’s banking sector saw rapid loan growth for several years, driven by retail demand for unsecured loans.<\/p>\n
However, the RBI intervened in late 2023, imposing stricter capital requirements on personal loans, credit card loans as well as credit to non-banking finance companies (NBFCs).<\/p>\n
Concerned about potential bad loans, the RBI’s tighter lending norms aimed to mitigate risk. Banks simultaneously reduced lending to optimise their credit-deposit ratio – a key liquidity metric – amid a scramble to raise deposits.<\/p>\n
As a result, loan growth has slowed significantly over the past few months, with personal and credit card loans particularly affected.<\/p>\n
However, the RBI relaxed its capital requirement rule last month, marking a significant shift since Sanjay Malhotra took over as governor in December.<\/p>\n
Although analysts expect the change to positively impact the economy, they say that the effect will only become apparent in a few months.<\/p>\n
Banks’ personal loan growth more than halved to 8.4% year-on-year in February from 19.5% a year ago, excluding the HDFC Bank merger impact, while growth in outstanding credit card debt dropped to 11.2% from 31%, the data showed.<\/p>\n
Credit growth in the services sector decelerated to 13% in February from 21.4%, primarily due to a drop in loans to NBFCs.<\/p>\n
Meanwhile, loans to industries grew 7.3% last month, lower than the 8.4% a year earlier.<\/p>\n
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)<\/i><\/p>\n
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