Indian Banks See Slower Loan Growth in September as RBI Curbs Retail Lending Surge

Indian Banks See Slower Loan Growth in September as RBI Curbs Retail Lending Surge

In September 2024, Indian banks recorded a moderation in loan growth, a shift attributed to the Reserve Bank of India's (RBI) restrictive measures to temper the “exuberance” in retail lending. Central bank data published on Thursday indicates that credit grew at a rate of 14.4% year-on-year, down from 15.3% in the same month last year, excluding the effect of the recent HDFC Bank and Housing Development Finance Corp. (HDFC) merger. Including the impact of this merger, the overall loan growth rate was 13% in September, a notable decline from the 20% growth recorded in September 2023.

The September slowdown reflects a trend first seen in August, marking consecutive months of moderation after sustained double-digit credit growth driven by India’s strong economic momentum and rising urban consumption. Concerned with potential risks of escalating bad loans, the RBI imposed higher capital requirements on banks in late 2023. Even as loan growth has eased, personal loans and credit card debt had previously shown robust growth of over 25% until early 2024, when the central bank issued warnings to banks regarding unchecked lending exuberance in these segments.

The RBI’s tighter norms and ensuing actions against non-compliant entities, along with an increase in defaults, have slowed credit growth across personal loans and credit card segments. Data shows that personal loan growth dropped by nearly half to 12.1% in September, while growth in credit card debt decelerated to 18% from 31.4% year-on-year. Rising defaults among over-leveraged borrowers are impacting top lenders, with banks anticipating further stress in these personal lending areas over the next year.

Credit growth in the services sector also slowed significantly to 15.2% from 21.6% the previous year, mainly due to reduced credit to non-banking financial companies (NBFCs). In contrast, loans to the industrial sector recorded an uptick, rising 9.1% year-on-year in September, compared with 6% growth in the same period last year, indicating increased lending to business operations and capital investments.

The RBI’s active regulatory stance underscores its goal of tempering risk within the banking system while ensuring sustainable growth in India’s lending ecosystem.