Led by a sharp plunge in retail credit, overall bank credit has more than halved to just 11% in FY25 from a high 20.11% in FY24. Retail loan disbursals declined to 11.6% from a high 27.6% during the period the previous year, the latest Reserve Bank data showed.
Fall in credit disbursement is because lenders scaled down disbursements in the unsecured loans segment due to regulatory concern and the high base effect. The decline was led by a sharp fall in home loans growth to 10.7% YoY in FY25, down from 36.5% in FY24.
The latest data from the Reserve Bank show that the overall bank credit growth declined to 11% in FY25 from 20.11% in FY24. In absolute terms, bank lending grew by `18.11 lakh crore in FY25 as against Rs 27.56 lakh crore in FY24. The data includes the impact of the merger of HDFC with HDFC Bank. Credit to the agriculture and allied sector grew 10.4%, down from 20% in FY24; to the industry at 7.8% from 8.5%; and to services at 12.4% down from 23.5% a year ago.
Analysts attributed the sharp decline to the high base in FY24 and partly to the HDFC twin merger.
Worried over a possible bubble, the RBI had been repeatedly warning over the rapid growth in retail credit and rising defaults in unsecured loans. As a result it in November 2023 had hiked the risk weights for unsecured loans and bank credit to non-banks by 25 percentage points to 125% to contain risk in the system.
In the retail segment, home loans saw growth of 10.7% in FY25, down from 36.5% in FY24 while credit card outstanding growth was 10.6% as against 25.6%, and the vehicle loans growth declined to 8.6% from 17.6%.
Personal loans, which are mostly unsecured, grew by 7.9%, down from 20.7%. Growth in the gold loans vaulted to 103.5% from 14.8%. The sharp rise in gold loans is partly due to the reclassification of agricultural loans as gold loans.