Personal Loan Growth Slows in India Due to RBIs Risk Weighting

The growth rate of fresh personal loan disbursements in India witnessed a decline in November 2023, dropping to 18.6% compared to the 19.9% growth recorded in the same period the previous year. This moderation in personal loan growth is attributed to several factors, including the Reserve Bank of India's (RBI) introduction of punitive risk weighting for loans and a downward trend in fresh credit growth in the housing segment.

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Key Findings

According to the RBI's report on the sectoral deployment of bank credit for November, the total outstanding fresh personal loan disbursements stood at Rs 50,56,524 crore at the end of November, showing an increase from Rs 41,80,838 crore during the same period in 2022. However, the growth rate for November 2023 fell to 18.6%, compared to the 19.9% growth recorded in November 2022.

The data encompasses loan deployment by 41 banks, representing approximately 95% of the total non-food credit deployment in India. Over the current financial year, personal loans have experienced a growth of 20.9%, as per RBI data.

Overall Credit Growth Slows

On an annualized basis, the non-food bank credit growth in India also witnessed a slowdown, dropping to 16.3% in November 2023, with a total credit amount of Rs 1,56,20,554 crore. This represents a decrease from the 17.6% growth rate recorded in November 2022.

Within the overall credit growth, the expansion of credit to the industrial sector witnessed a significant slowdown, halving to 6.1% on-year in November 2023, with a credit amount of Rs 36,00,876 crore, compared to the 13% growth rate observed in November 2022.

Variations in Credit Growth Across Industries

Among the major industries, the growth of credit to basic metal and metal products, food processing, and textiles accelerated during the reporting period. In contrast, credit growth decelerated for all engineering, chemicals and chemical products, and infrastructure sectors.

On the other hand, credit growth to agriculture and allied activities accelerated to 18.2% on-year in November 2023, showing an improvement from the 14% growth rate recorded a year ago.

Service Sector Credit Growth Steady

The service sector in India experienced a steady growth in credit, with a 21.9% increase in November 2023 compared to a 21.3% growth rate in the same period of the previous year.

The moderation in personal loan disbursements and the overall slowdown in non-food bank credit growth in India reflect the impact of various factors, including the RBI's risk weighting measures and trends in specific sectors such as housing and industry. While some industries experienced variations in credit growth, the service sector maintained a steady growth trajectory. These developments highlight the dynamic nature of India's credit landscape and the ongoing adjustments in response to economic conditions and regulatory changes.