Retail Loans, Services Credit Aid Bank Credit Growth In July
Bank credit grew at its fastest pace since July 2019. What went behind this growth?
Bank credit in July rose at its fastest pace in three years, aided by retail loans and services credit.
After a few years of sluggish growth, non-food bank credit rose 15.1% year-on-year in July, according to the monthly data released by the Reserve Bank of India. It's at its highest level since July 2019.
On a monthly basis, retail loans and services credit led lending growth, and credit to industries expanded 10.5%.
While retail credit's monthly performance was subdued, it has expanded 18.8% on an annual basis, with housing loans, credit cards, and vehicle loans leading the gains.
The current expansion in retail loans is also boosted by the base effect of banks tightening their purse strings last year as the Indian economy suffered due to the second wave of the Covid-19 pandemic. In a note on Thursday, ICICI Securities analysts said with normalisation visible in most sectors of the economy, they expect retail credit growth to sustain in the mid-to-high teens.
Housing loans led the monthly expansion in retail credit and contributed 38% of the growth. Vehicle loans and credit card debt also expanded 15% and 13%, respectively, to overall retail loan growth in July 2022.
Credit card debt currently stands at an all-time high of Rs 1.6 lakh crore and has expanded 37% since May 2021, when spending saw a major dip due to pandemic-related shocks. Vehicle loans are also up 19.2% year-on-year, while housing loans have expanded 16.2%.
Lending to NBFCs grew 5.7% on a monthly basis in July and is up 27.4% year-on-year. Typically, a rise in credit to non-bank lenders results in better on-lending to priority sectors for banks. Overall, credit growth in the services sector stood at 16.5% in July 2022 as compared to 3.8% in July 2021.
Credit to industries—which make up about 28% of non-food industry credit—expanded by 0.4% on a monthly basis and is up 10.5% year-on-year.
Medium-sized industries have led credit growth on a yearly basis and have expanded their credit by 36.8%. Micro and small industries credit grew by 28.3% and credit to large industries grew by 5.2% over the same time period.
Private banks have shown the largest recovery in credit inquiries from MSMEs, which are up 70% from pre-pandemic levels, according to a Sept. 1 report by Kotak Institutional Equities. Average loan sizes in the medium segment have also ticked up sharply from Rs 95 lakh in the final quarter of FY 2020 to Rs 1.4 crore in the final quarter of FY 2022, Kotak Institutional Equities analysts noted.
"We believe revival in consumer demand, rise in private [capital expenditure] followed by a rise in government expenditure can be potential triggers for industry credit growth," ICICI securities said in its report.