MUMBAI: Non-food credit growth of banks continued to slow down for the eighth consecutive month for the fortnight to February 21, at 12% as against 16.6% reported in the trailing 12 months period, primarily due to a drop in personal and credit card loans following tighter rules by the Reserve Bank.
The central bank data showed Thursday that at the system level banks’ credit increased by 12% on-year last month, slower than the 16.6% rise a year earlier, excluding the impact of HDFC Bank's reverse merger with its parent Housing Development Finance Corp, which took place in July 2023.
Including the merger impact, the central bank said loans grew 11% in February, compared with 20.5% in the year-ago period.
The growth rate was 12.5% in January, excluding the merger, and 11.4% including the merger. Credit demand has been slowing since December 2023 after RBI asked banks to set aside 25 percentage at 125% more in risk weighted capital for their unsecured books like personal loans and credit cards and also to their loans to non-banks which have been primarily driving business through unsecured loans.
While personal and other unsecured consumer loans were clipping at over 30% for a few years since the pandemic credit cards spends were also in high teens. This had the monetary authority worrying about a bubble being created. And the regulatory action has had its desired impact by the middle of this fiscal as the system level unsecured books have slowed down to low single digits.
However, the RBI relaxed its capital requirement rule last month, marking a significant shift since Sanjay Malhotra took over as governor in December. But industry expects the impact of the relaxations to come into play only with a lag.
While personal loan growth more than halved to 8.4% in February from 19.5% a year ago, excluding the HDFC Bank merger impact, growth in outstanding credit cards debt dropped to 11.2% from 31%, the data showed.
Credit growth in the services sector decelerated to 13% from 21.4%, primarily due to a drop in loans to NBFCs.
Loans to industries grew 7.3% last month, lower than the 8.4% a year earlier and farm credit registered a growth of 11.4% for the fortnight to February 21, down from 20% in same period last year.
Meanwhile, another set of data from the regulator showed that the weighted average lending rate (WALR) on fresh loans rose to9.40% in February from 9.32% in January while the same on exiting loans declined to 9.80% in February from 9.87% in January.
One-year median Marginal Cost of Funds based Lending Rate (MCLR) declined to 9% in March from 9.05% in February.
The share of External Benchmark based Lending Rate (EBLR) linked loans in total outstanding floating rate loans was 60.6% at end-December 2024 (59.4% at end-September 2024), while that of MCLR linked loans was 35.9% (36.9 per cent at end-September 2024).
The weighted average domestic term deposit rate (WADTDR) on fresh rupee term deposits of SCBs stood at 6.48 per cent in February 2025 as compared to 6.56 per cent in January 2025.
On the deposits rates, the data showed that the weighted average domestic term deposit rate on outstanding term deposits remained unchanged at 7.02% in February.