
Bank credit hits ₹150 tn on retail, HDFC merger

Summary
- Outstanding credit in the banking system rose 14.7% year-on-year in July
Mumbai: Outstanding credit in the banking system has surpassed the ₹150 trillion mark in September, aided by Housing Development Finance Corp.’s and HDFC Bank’s merger, as well as sustained credit demand from individuals and small businesses.
Following the merger of mortgage lender HDFC with India’s largest private lender, its loan book and deposits became part of the banking system. HDFC had assets of ₹7.2 trillion under management and deposits of ₹1.6 trillion as on 31 March. The merger led to a one-time rise in bank credit and deposit numbers, as reflected in the data for the fortnight ended 14 July.
To be sure, the ₹150 trillion includes food credit, or loans extended to the Food Corp. of India and state governments to procure foodgrain. Aggregate bank credit was at ₹50 trillion in December 2012, and took a little over seven years to reach ₹100 trillion. In less than four years it reached ₹150 trillion, according to data from the Reserve Bank of India (RBI).
In July, bank loans to retail borrowers grew 31.7% (18.4% excluding the impact of HDFC merger) from a year earlier, while loans to MSMEs (micro, small and medium enterprise) rose by 15.7%. In contrast, loans to large industries were up by just 4.3% from a year ago.
Banks will continue to rely on retail and MSME borrowers, due to muted corporate credit demand, experts said.
Outstanding credit in the banking system rose 14.7% y-o-y in July or 19.7% which includes loans of erstwhile HDFC. Care Ratings expects the pace of growth to moderate to about 13% by the end of FY24.
“Retail loans are growing at a quick pace as a result of India’s economic growth, formalization of credit and willingness of customers to borrow," said Sanjay Agarwal, senior director, Care Ratings.
Agarwal said unsecured personal loans, especially those with high yields, are growing at a faster rate than overall industry and needs to be watched, as high inflation could have an impact on the repayment capacity of this segment. “For credit growth to be sustainable, corporate credit demand must come back," he said.
Growth in retail loans was also behind ballooning household borrowing in FY23 which rose 57% from a year ago, according to RBI data. Demand for retail loans, even as corporate borrowers sit on the fence, has increased the share of individual loans in total bank credit.
According to Crisil, retail credit growth has outpaced overall banking sector credit growth in recent years, resulting in a rise in share of the retail segment to 29% in FY23 from 23% in FY18, driven by both cyclical and structural elements.
“Cyclical, because banks, having faced significant challenges in asset quality in the corporate book, were very cautious in lending to that segment. Banks have gradually shifted focus to the retail segment since demand for corporate credit is muted as corporates have deleveraged in the last few years, as well as on account of the fine pricing for highly-rated corporates," said Subha Sri Narayanan, director, Crisil Ratings Ltd.
While the high base of FY23 will play a role in the expected moderation of bank credit growth in the current fiscal year, it should still remain higher than the levels five years ago, Narayanan said.