Growth in bank credit to NBFCs declines sharply to 6.4%: RBI data

The growth of bank credit to non-banking financial companies (NBFCs) sharply declined to 6.4% in October, down from 18.3% in the same period last year. This downturn has contributed to a decrease in the overall growth of credit in the services sector, according to data on sectoral deployment of credit from the Reserve Bank of India (RBI).

In October, the total credit growth for the services sector fell to 14.1% year-on-year, compared to 20.4% in the previous year. The decline was primarily driven by reduced credit growth to both NBFCs and the trade segment.

The outstanding bank credit to NBFCs stood at Rs 15.36 trillion in October 2024 compared to Rs 14.44 trillion in the same month last year. It was Rs 15.29 trillion in September 2024 and Rs 15.48 trillion in May this year.

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 In its September bulletin, the RBI noted that finance companies have diversified their funding sources and reduced their borrowing from banks after the central bank increased risk weights on bank borrowings. In November 2023, the RBI raised the risk weight on NBFCs by 25 percentage points to pre-empt the build-up of potential risks in these segments.

In the services segment, the growth in loans to the trade segment dropped to 12.4% from 20.7% in October 2023. However, the pace of growth in loans for commercial real estate accelerated to 26% Y-o-Y from 14.8%.

According to RBI data, the retail credit growth which consists mainly of unsecured credit, fell sharply to 15.8% Y-o-Y in October 2024 from 18.0%, largely due to decline in growth in other personal loans, vehicle loans and credit card outstanding.

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The pace of growth in credit card outstanding also decreased to 16.9% from 28% during this period. Growth in vehicle loans dropped to 11.4% compared with 20% in the year-ago period. However, credit growth to the largest segment - housing - accelerated to 17.8% Y-o-Y from 14.3%. The credit growth numbers exclude the impact of the merger of HDFC with HDFC Bank.

The RBI noted in its statement that non-food credit increased at a slower clip of 12.8% in October compared to 15.5% a year ago. Credit to industry strengthened to 8% in October compared with 4.8% a year ago. Credit to agriculture and allied activities registered a growth of 15.5% in October compared with 17.4% seen in the same month of last year.

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