IGI Logo

 Loan growth at Indian banks moderated for an eighth straight month in February, central bank data showed on Thursday, due to a drop in personal and credit card loans following tighter rules by the Reserve Bank of India.

The data showed that banks' credit increased by 12% year-on-year last month, slower than the 16.6% rise a year earlier, excluding the impact of HDFC Bank's merger with parent Housing Development Finance Corp.

Including the merger impact, loans grew 11% in February, compared with 20.5% in the year-ago period.

The loan growth rate slowed to 12.5% in January, excluding the merger, and to 11.4% including the merger.

India's banking sector saw rapid loan growth for several years, driven by retail demand for unsecured loans.

However, the RBI intervened in late 2023, imposing stricter capital requirements on personal loans, credit card loans as well as credit to non-banking finance companies (NBFCs).

Concerned about potential bad loans, the RBI's tighter lending norms aimed to mitigate risk. Banks simultaneously reduced lending to optimise their credit-deposit ratio - a key liquidity metric - amid a scramble to raise deposits.

As a result, loan growth has slowed significantly over the past few months, with personal and credit card loans particularly affected.

However, the RBI relaxed its capital requirement rule last month, marking a significant shift since Sanjay Malhotra took over as governor in December.

Although analysts expect the change to positively impact the economy, they say that the effect will only become apparent in a few months.

Banks' personal loan growth more than halved to 8.4% year-on-year in February from 19.5% a year ago, excluding the HDFC Bank merger impact, while growth in outstanding credit card debt dropped to 11.2% from 31%, the data showed.

Credit growth in the services sector decelerated to 13% in February from 21.4%, primarily due to a drop in loans to NBFCs.

Meanwhile, loans to industries grew 7.3% last month, lower than the 8.4% a year earlier.