Growth in bank credit to NBFCs declines to 6.4%: RBI Data

The Reserve Bank of India's (RBI) recent sectoral deployment of credit data reveals a significant slowdown in the growth of bank credit to non-banking financial companies (NBFCs). In October, this growth rate fell sharply to 6.4%, down from 18.3% in the same period last year. This decline has notably impacted the overall credit growth in the services sector.

The services sector experienced a reduced year-on-year (Y-o-Y) credit offtake growth rate of 14.1% in October, compared to 20.4% last year. This decrease is primarily attributed to the reduced growth in credit to NBFCs and the trade segment.

As of October 2024, the outstanding bank credit to NBFCs stood at Rs 15.36 trillion, compared to Rs 14.44 trillion in October 2023. The figures for September 2024 and May 2024 were Rs 15.29 trillion and Rs 15.48 trillion, respectively.

In its September bulletin, the RBI highlighted that finance companies have diversified their funding sources and decreased their reliance on bank borrowings. This shift came after the central bank increased the risk weights on bank borrowings for NBFCs in November 2023 by 25 percentage points, aiming to mitigate potential risks in this sector.

The trade segment within the services sector also saw a decline, with loan growth dropping to 12.4% from 20.7% in October 2023. Conversely, loans for commercial real estate saw an acceleration in growth to 26% Y-o-Y, up from 14.8%.

Retail credit growth, mainly consisting of unsecured credit, dropped significantly to 15.8% Y-o-Y in October 2024, down from 18.0%. This decline was largely due to slower growth in personal loans, vehicle loans, and credit card outstandings. Specifically, credit card outstanding growth fell to 16.9% from 28%, and vehicle loan growth declined to 11.4% from 20% in the previous year.

On the positive side, credit growth in the largest segment, housing, increased to 17.8% Y-o-Y from 14.3%. These figures exclude the impact of the merger between HDFC and HDFC Bank.

Overall, non-food credit increased at a slower pace of 12.8% in October compared to 15.5% a year ago. Credit to industry saw a rise, strengthening to 8% from 4.8% last year. Meanwhile, credit growth to agriculture and allied activities registered a slight decline, growing by 15.5% compared to 17.4% in the same month last year.