India’s banking sector experienced a slowdown in loan growth for the fifth consecutive month in November, as the Reserve Bank of India (RBI) continues to enforce stricter lending regulations. According to the latest data (Sectoral Deployment of Bank Credit - November 2024) released by the RBI, overall credit growth slowed to 11.8% year-on-year in November 2024, compared to 16.5% in the same month last year, excluding the impact of the HDFC Bank merger. When factoring in the merger, total loan growth was even lower, at 10.6%, marking a significant drop from nearly 21% during the same period last year.
The slowdown in credit growth follows a trend of moderation that began earlier in 2024. In October, loan growth had already decelerated to 12.8% excluding the merger (of HDFC and HDFC Bank), and 11.5% when including it. The gradual decline in loan growth can be attributed to a combination of factors, with one of the most significant being the RBI’s actions aimed at curbing "exuberant" lending practices. The central bank’s crackdown on unsecured loans and personal lending—such as personal loans and credit cards—appears to be taking effect.
Banks’ personal loan growth fell sharply in November, dipping to 12.2% from 22.4% a year earlier, excluding HDFC Bank's merger impact. Similarly, growth in outstanding credit card debt dropped to 18.1% from 34.2% during the same period in 2023. These shifts indicate that the RBI’s increased capital requirements for personal loans and credit cards are starting to cool the once-booming retail lending market. The RBI had raised concerns about the rising risks of bad loans, prompting lenders to be more cautious in issuing unsecured credit.
The RBI has repeatedly warned the financial sector to avoid “all forms of exuberance” and urged lenders to carefully monitor potential stress points emerging from new lending models and the growing link between banks and non-banking finance companies (NBFCs). The central bank’s cautious stance on lending comes amid fears that aggressive lending practices could lead to a spike in bad loans, potentially destabilizing the financial system.
While personal loan growth has slowed, credit to industries has shown a relatively positive trend. Loans to industry grew by 8.1% in November, an improvement over the 5.5% growth recorded in the previous year. This suggests that while consumer lending is cooling, businesses are still accessing credit to fund operations and expansion, albeit at a slower pace.
In contrast, credit growth to the services sector decelerated to 14.4% in November, down from 22.2% a year earlier. This slowdown was largely attributed to reduced credit growth for NBFCs, which are significant players in the lending market for the services sector. As a result, the financial sector's performance in November reflected a clear shift in focus from aggressive personal lending to more conservative, industry-focused credit disbursements.
The moderation in bank loan growth highlights the changing dynamics of India’s credit market, as lenders adjust their strategies in response to regulatory measures and broader economic uncertainties. The impact of these tighter lending conditions on the economy remains to be seen, but it’s clear that the RBI’s measures are having a significant influence on the country’s credit landscape.
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