Bank Credit Growth Slows in Retail and Service Sectors as Lenders Exercise Caution

Bank Credit Growth Slows in Retail and Service Sectors as Lenders Exercise Caution

The latest data on sectoral deployment of bank credit reveals a slowdown in credit growth, with the pace declining to 14.4% in September 2024 from 15.3% a year earlier. The more conservative lending approach primarily targeted the retail and non-bank financial sectors, reflecting a cautious stance by banks as they navigate macroeconomic uncertainties and the evolving regulatory environment.

According to industry analysts, banks have been reassessing risk in the retail sector, especially with high levels of consumer debt and rising interest rates affecting repayment capacities. Lending to non-bank financial companies (NBFCs) has also decelerated as banks work to ensure more rigorous credit evaluations and mitigate exposure to high-risk sectors.

Despite the overall deceleration, specific retail lending categories, such as personal loans and vehicle financing, continued to exhibit steady demand, indicating that consumer interest remains resilient. However, growth in unsecured loans saw a more noticeable moderation, as banks leaned toward safer credit segments and fortified risk assessment criteria to balance profit with prudence.

In the services sector, banks are directing their focus to established enterprises with solid credit histories, while limiting exposure to newer, high-risk segments. Credit to trade, commercial real estate, and hospitality services witnessed marginal growth, as banks aligned their credit strategies to current market conditions.

As India’s financial landscape evolves, this cautious lending approach may influence the pace of broader economic recovery. While tighter lending practices might help stabilize the banking sector, there is concern that the reduced credit flow to services and retail could impact overall growth in these key economic segments.