The latest data presented by the Reserve Bank of India (RBI) show easing of personal loan expansion in India’s financial sector. Personal loan expansion year-to-year was 14.2% in the fortnight as of January 24, 2025 as detailed in a press release by RBI on Feb 28, 2025.
This, in the case of the sample 41 commercial banks covering virtually all the universe of non-food credit (more than 95%). On a year-on-year basis, non-food bank credit as of the fortnight ended January 24, 2025 registered a growth of 12.5% which is a three month high as compared to 16.2% for the corresponding fortnight of the previous year, the RBI elaborated further.
Therefore, RBI’s incisive examination of such moderation in growth of consumer loans suggests some of the sub-segments of the category. Tame growth rates in other personal loans, vehicle loans and credit card outstanding are reported to be one of the major causes of the overall slowdown. It suggests that there may be some change in consumption borrowing pattern, possibly influenced by higher uncertainty in the economy or changed interest rate dynamics.
Though the overall non-food bank credit market did witness a three-month high of year-on-year expansion at 12.5%, this is short of the 16.2% expansion of the same period last year. This indicates the importance of the moderation in consumer loans to the overall credit market.
The RBI data also captures numbers of other important segments:
Allied activities and farming
Lending in this category was seen to experience a noticeable slackening, growing at 12.2% following the spectacular year-on-year growth of 20.0% in the previous year.
Industry
Banking sector credit in the industry category witnessed a slightly muted pick-up of 8.2% compared with 7.5% previously. Particularly in advance among such large industry groups which recorded improved levels of growth of outstanding credit were basic metals, engineering, chemicals, and petroleum.
Credit to the services sector
Softened to 13.8% year-on-year (YoY) since on the fortnight ending January 24, 2025 (21.0 per cent for the last corresponding fortnight of the preceding year, as credit picked up gradually to Non-banking financial companies (NBFCs) and trade segments. Credit growth YoY in computer software also picked up pace.
The personal loans segment
Experienced an increase of 14.2% YoY since the fortnight ended January 24, 2025, versus 18.2% during the same period last year, primarily due to decline in growth rate in ‘other personal loans’, ‘vehicle loans’ and ‘credit card’.
This deceleration or decline in the pace of personal loan growth, as seen from RBI data, must be taken into consideration very seriously.
Deceleration in consumer credit has a wider impact on economic activity when the sector is in good health. This must be watched closely by policymakers, investors and market participants, as this information can guide investors in making informed investment decisions.
Credit: With reference to numbers released by Reserve Bank of India (RBI).
