Credit growth slow despite rate cuts
Reserve Bank of India
(RBI) slashed policy rates by a cumulative one percentage point so far this year.
Lending by commercial banks rose 9.8 percent during the fortnight ended July 11 at Rs 184.6 lakh crore, compared with the 14% growth in the same period a year ago, according to the latest data released by the RBI.
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Significantly,
credit growth
is also lower than the deposit growth of 10.1 percent - unlike last year, when credit growth outpaced deposit mobilization.
The sectoral break-up of lending data up to May this year shows a slowdown in loan growth across sectors. But the slowdown in retail loan growth has been more prolonged since November 2023 when the
Reserve Bank
imposed regulatory restrictions by raising the risk weights on lending to unsecured retail and credit card outstanding. The Reserve Bank also clamped down on
NBFC lending
by banks by raising risk weights.
A recent report by
HSBC
attributes the slowdown in bank lending to the woes in the real sector.
'Softening growth in the formal sector is dragging down credit growth,' said the
HSBC report
. 'With formal sector fortunes not rising as rapidly this year, the investment demand for credit (e.g. housing loans) will likely be tepid. With the informal sector benefiting from better real incomes (both farm and non-farm), the need to take personal loans to fund consumption will likely be weak too,' it said.
India's forex reserves slid $1.2 billion during the week ended July 18 to $695.5 billion, the latest RBI data showed. Market analysts attribute this to a slowdown in foreign portfolio (FPI) inflows.
'FPI capital inflows to emerging markets remain subdued in 2025 compared to 2024, mainly due to equities,' said a recent report by
IDFC First Bank
.' Net FPI inflows (in India) have remained muted with outflows in debt and subdued equity inflows.'
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