Bank lending slows to 5.4% in the second quarter, personal lending continues to grow double-digit

Bank lending growth continued to be reliant on personal lending in the September quarter (July-September or Q2), according to data released by the Reserve Bank of India (RBI) on Friday. While bank lending grew just 5.4 percent year over year in the second quarter, personal lending, which made up a quarter of lending, continued to post double-digit growth.

The loan had grown by 5.7 percent in the previous quarter. Industrial lending, however, shrank 1.7 percent year over year and its share of total lending was nearly 30 percent at the end of the quarter.

Credit growth in the metropolitan branches of banks slowed 3.3 percent year over year, but branches in rural, semi-urban and urban areas made up for it. “Bank lending to private non-financial companies continued to shrink for the fourth straight quarter (YoY) and was (-) 6.7 percent, reflecting subdued demand,” said the RBI, although the weighted average lending rate on outstanding loans fell 21 basis points in the quarter.

Meanwhile, the trend and progress report of the RBI showed that the banks experienced a strong mobilization of deposits despite falling credit demand.

People flocked to public sector banks with their money, believing it to be a safe haven. As a result, “deposits at PSBs grew faster than usual” in 2020-21.

“The growth of time deposits in private banks has slowed sharply, while in public-sector banks it has quadrupled.”

However, other asset classes also competed for the deposits and in some cases offered better returns. As a result, the growth in time deposits – which make up nearly 60 percent of deposits – slowed.

A subdued credit growth rate and relatively robust deposit growth rate for most of the year resulted in a decline in the lending needs of banks other than private banks, the RBI said in its second-quarter credit growth report on personal lending

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