Bank Credit to Industry Grows 42.8 Percent in First Half of FY25 While Lending to NBFCs Slows

Bank Credit to Industry Grows 42.8 Percent in First Half of FY25 While Lending to NBFCs Slows

In a sign of robust economic momentum, bank credit to industry across small, medium, and large segments increased by 42.85% in the first half of the current fiscal year (H1FY25), reaching Rs 1.5 trillion, up from Rs 1.05 trillion during the same period last year, according to data from the Reserve Bank of India (RBI). As of September 2024, outstanding credit to industry stood at Rs 37.86 trillion, excluding the effects of the recent HDFC and HDFC Bank merger.

Large enterprises, which make up the bulk of industry credit, held Rs 27.16 trillion in outstanding loans. Year-on-year (YoY) credit growth to industry was at 9.1% in September 2024, an increase from 6.0% in the previous year. The RBI noted improved sentiment in the manufacturing sector for the third quarter of FY25, along with eased pressures on raw material costs and expectations for continued growth in selling prices. Services and infrastructure sectors maintained a positive outlook for Q3FY25 as well, boosted by resilient non-food credit growth, high capacity utilization, and the government’s infrastructure focus.

In its October monetary policy review, the RBI highlighted moderation in retail loan growth to 16.4% as of September 2024, down from 18.2% the previous year. This was largely attributed to a decline in personal loan growth, which fell to 12.1% from 23.6% YoY. Growth in vehicle loans also moderated, dropping to 13.3% from 21.2%, while credit card outstanding loans slowed to 18.0% from 31.4%. Housing loans, however, continued to accelerate within the retail loan segment.

Credit to the services sector decelerated from 21.6% in September 2023 to 15.2% in September 2024, primarily due to reduced lending to non-banking financial companies (NBFCs). Growth in lending to NBFCs dropped to 9.5% from 21.9% YoY, with outstanding credit to finance companies decreasing to Rs 15.29 trillion in September from Rs 15.48 trillion. This shift reflects banks’ cautious approach following regulatory concerns over rapid NBFC credit growth, which led to raised risk weights for NBFC loan exposures in November 2023.

Agriculture and allied activities saw continued growth, with credit expanding by 16.4% in September 2024, compared to 16.7% in the same period last year, underscoring steady financial support for this sector.