Context:
According to the Reserve Bank of India (RBI), non-food bank credit growth slowed to 10.2% year-on-year (Y-o-Y) as of the fortnight ended June 27, 2025, down from 13.8% during the same period in 2024. The slowdown was driven by weaker demand across agriculture, services, retail, NBFCs, and industrial sectors.
Key Highlights:
1. Agriculture and Allied Activities
- Credit flow to the agriculture sector has witnessed a marked decline.
- After a strong performance last year, banks are reporting a reduced pace of disbursement—likely due to high base effects and tightening liquidity in rural areas.
2. Services Sector
- One of the strongest performers in recent years, the services sector has also experienced a notable dip in credit offtake.
- Key sub-segments like trade and NBFCs have seen especially muted growth, indicating restrained working capital demand and cautious lending by banks.
3. NBFCs and Trade
- Non-Banking Financial Companies are facing limited credit flow from the banking system, partly due to regulatory tightening and increased scrutiny.
- The trade sector too has cooled off, with wholesalers and retailers showing lesser appetite for fresh credit amid subdued consumer demand.
4. Retail Lending Trends
Personal loans, housing finance, and vehicle loans—once pillars of credit growth—have all recorded slower expansion. This signals a shift in household borrowing behaviour, possibly due to higher interest rates, inflationary pressures, and reduced discretionary spending.
- Personal loans: Witnessed sluggish growth, especially in the unsecured segment.
- Housing loans: Demand continues but at a softer pace, possibly due to high property prices and cautious consumer sentiment.
- Vehicle and credit card loans: Reflect weakened urban consumption.
5. Industrial Credit
- Credit flow to industries, including infrastructure and manufacturing, has slowed.
- Despite strong government capex, private investment remains tentative, reflecting continued uncertainty and cautious business sentiment.
Reasons Behind the Slowdown
- Seasonal Factors: The April–June quarter typically sees lower demand, especially post financial year-end reconciliations.
- Compliance Overhang: Banks have been focused on audits, provisioning, and regulatory compliance during the start of the new fiscal.
- Borrower Caution: With macroeconomic volatility, both corporates and individuals are adopting a wait-and-watch approach to fresh borrowing.
