As economic activity slows due to stuttering consumption and the RBI’s regulatory measures weigh on personal loans, non-food credit growth has slowed sharply from year-on-year growth of 20 per cent in September 2023 to 13 per cent in September 2024. While most segments on non-food credit have recorded slowdown, credit to agriculture and allied activities recorded the strongest growth.

Overall, non-food credit outstanding grew from ₹151.3 lakh crore towards September-end 2023 to ₹171.05 lakh crore in September 2024. Among the segments of non-food credit, loans to agri and allied activities recorded the strongest growth this year at 16.4 per cent, growing from ₹18.6 lakh crore in September 2023 to ₹21.6 lakh crore in September 2024.

Explaining the relative outperformance of the agriculture sector, Sachin Sachdeva, Vice-President and Sector Head – Financial Sector Ratings, ICRA, says, “Risk aversion in retail and non-banking financial companies (NBFC) sector has increased considerably in the past two-three quarters in line with the regulatory actions in the said sectors. Whereas, the agriculture and allied sectors continue to perform as anticipated and hence the growth moderation has been limited.”

The deceleration in growth has, however, been quite sharp across other segments. Credit growth in the services sector, which stood at 29.3 per cent in September 2023, declined to 13.7 per cent in September 2024. Similarly, personal loan growth dropped from 33.3 per cent to 13.4 per cent during the same period. Growth in credit to industry has been in doldrums since 2019.

“In the last two-three years, there had been healthy growth in advances especially to the retail sector, which received sizeable funding from banks as the corporate book had been either declining or witnessing moderate growth,” explains Sachdeva. “Benign asset quality in the retail sector also prompted banks to grow this book further. However, anticipating the risk, given the significantly high growth in retail, the regulator turned cautious and took certain steps like nudging the banks to reduce their credit-deposit (CD) ratio, increase in risk weights towards high-growing loan segments, and proposal to review the liquidity coverage ratio (LCR) framework. Consequently, in line with ICRA’s estimates for FY25, the banks’ advance growth has started moderating across sectors.”

Outstanding credit

As the share of credit to industry slowed, the share of outstanding credit to services and personal loans has increased. The share of services rose from 27.4 per cent in September 2019 to 29.1 per cent in September 2024, while personal loans increased from 27.3 per cent to 34.3 per cent during the same period.

The overall outstanding credit in absolute terms has increased across sectors. Personal loan credit rose from ₹49 lakh crore in September 2023 to ₹54 lakh crore in September 2024. Outstanding credit in the services sector increased from ₹41 lakh crore to ₹47 lakh crore, while the industry sector saw an increase from ₹34 lakh crore to ₹38 lakh crore.