Bank credit aligning with deposits growth, no stress

There is no stress in bank loans at the macro level, with that as a percentage of GDP remaining well below the long-term trend, suggesting potential for growth. The Eco Survey noted a moderation in bank credit, which is now aligning with the rate of growth in bank deposits.
By Nov 2024, the growth in overall bank credit moderated to 11.8% year-on-year, down from 15.2% a year ago.Furthermore, as of Dec 27, 2024, the growth in overall bank credit for the current financial year had slowed to 7.7%. In the same period, growth in non-food credit was 7.5%, compared to 11% during the same period last year. “The moderation in credit growth can be attributed to an increase in lending rates (as a result of monetary policy transmission of higher policy rates to higher lending rates) and the imposition of increased capital requirements for unsecured personal loans, credit cards and lending to non-banking financial companies (NBFCs) by RBI from 100% to 125%,” the report card said.
The credit-to-GDP ratio is useful for assessing an economy’s position in the financial cycle. A ratio higher than its trend may signal stress in lending, while a lower ratio suggests room for growth.
“Despite the double-digit growth in bank credit post-April 2022, the credit-to-GDP ratio is below the trend line, indicating that the recent growth in bank credit is sustainable.”
The survey also noted improvements in asset quality across major bank groups. “The GNPA ratio of SCBs has declined consistently from its peak in FY18 to a 12-year low of 2.6% at the end of Sept 2024. Lower slippages and a reduction in outstanding GNPAs through recoveries, upgradations, and write-offs have led to this decrease. Lower GNPAs and higher provisions accumulated in recent years also contributed to a decline in net NPAs at around 0.6% at the Sept-end 2024.”