Growth in bank credit moderated during the first quarter of the current financial year following a slowdown in the services sector while loans for consumer durables contracted significantly.
According to the latest data from the Reserve Bank of India (RBI) on the sector-wise deployment of bank loans, there was a 71.5% year-on-year contraction in the consumer durables category till June 21, compared with the 17.3% growth in the year-ago period.
Consumer loans are under the personal loan category where growth slowed down to 16.6% from 17.9%.
Outstanding bank credit to the consumer loan segment fell sharply to ₹5,800 crore from ₹20,300 crore.
Vehicle loans, another segment of retail finance, had also seen a sharp decline in credit growth. According to the data, vehicle loan growth had fallen to 5.1% from 11.1% recorded a year ago. The RBI had recently reduced the risk weight on products like personal loans to encourage banks to lend to these segments. Lower risk weight would mean banks have to set aside lesser capital while extending these loans. Loans against shares and bonds also contracted with year-on-year growth at a negative 5.4% compared with 8.3% a year ago.
Loan growth to the services sector slowed to 13% year-on-year from 23.3% from a year ago. After recording 13.2% year-on-year growth in 2018-19, bank credit moderated to 12.2% year-on-year till August 2.
One marked exception is in home loans, which is still holding steady. Housing loans have grown 18.9% year-on-year on top of the 15.8% growth a year ago.
While there is a demand slowdown, RBI has cut interest rates by 110 basis points in 2019 to boost loan growth.
