Bank Lending Growth Accelerates To 17.65% In May-End Fortnight, RBI Data Shows

Bank credit growth accelerated to its fastest pace in nearly two years in the fortnight ended 31 May, even as deposit growth remained significantly slower, according to data released by the Reserve Bank of India (RBI).

Outstanding bank credit rose 17.65% year-on-year (YoY) to ₹215.15 trillion as of 31 May, compared with ₹182.87 trillion in the same period last year. Deposits increased 12.21% to ₹260.02 trillion from ₹231.73 trillion a year earlier.

Gap Between Credit And Deposit Growth

The gap between credit and deposit growth widened to 544 basis points, highlighting the continued pressure on banks to fund strong loan demand.

On a sequential basis, outstanding credit increased by 1.55%, or ₹3.29 trillion, from ₹211.86 trillion recorded on 15 May. Deposits rose 1.22%, or ₹3.13 trillion, from ₹256.89 trillion during the same period.

Sharp Improvement From The Previous Fortnight

The latest figures mark a rebound from the previous fortnight, when loan growth remained strong on an annual basis but slipped marginally on a sequential basis. For the fortnight ended 15 May, bank credit had expanded 16.2% YoY to ₹211.87 trillion. Deposits had grown 12.2% to ₹256.88 trillion.

At that point, the difference between credit and deposit growth stood at around 400 basis points. Sequentially, credit had fallen 0.1%, or ₹23,807 crore, while deposits had declined 0.7%, or about ₹1.8 trillion.

Services, Industry Drive Loan Demand

The RBI's sectoral deployment data for April showed lending demand remained broad-based across segments. Credit to the services sector grew nearly 19% YoY, led mainly by loans to non-banking financial companies (NBFCs).

Industrial credit expanded more than 15% during the month. Higher borrowing costs in the bond market led a number of companies to turn to banks for fresh funding. That trend helped keep credit demand from the industry on a strong footing.

Retail lending also continued to grow at a healthy pace, rising around 16% from a year ago. Among retail products, gold-backed loans saw particularly strong traction.

Deposit Growth Still Trails Lending

Banks, meanwhile, continue to grapple with slower deposit growth. Loans have been growing faster than deposits for an extended period. This is a trend that has persisted for nearly two years. Therefore, lenders have stepped up efforts to bring in more deposits and strengthen their funding base.

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Many banks have also increased their use of wholesale funding instruments, including certificates of deposit, to support lending activity. RBI Governor Sanjay Malhotra recently said bank credit growth remains robust and broad-based. He noted that demand for bank loans has stayed strong as market-based funding channels have become relatively more expensive for borrowers.

Sources:

Business Standard

Financial Express