NEW DELHI: The Reserve Bank of Indiaโs (RBI) latest data for January 2025 highlights a continued slowdown in overall loan growth, which remains below 12% year-on-year (YoY). Among key segments, agriculture loans grew by 12.2% YoY, services by 12.5% YoY, retail by 11.8% YoY, and industry by 8% YoY. Retail loan growth has softened significantly, standing at ~12% compared to over 20% in previous years. Despite this deceleration, retail loans now constitute ~33% of total loans, a notable rise from 19% in FY15, whereas the industryโs share has declined from 44% in FY15 to ~22% now.
Key Trends in Lending
A few notable trends emerge from the data:
- Except for the services sector, other segments registered less than 1% month-on-month (MoM) growth.
- Lending to non-banking finance companies (NBFCs), housing finance companies (HFCs), and public financial institutions (PFIs) remains subdued.
- Industrial growth has slowed further, with medium enterprises witnessing a decline.
Overall, loan growth appears weaker than anticipated for FY25. However, the RBIโs pro-growth stance may help alleviate some pressure, warranting close monitoring of future trends.
Retail Loan Growth Softens; Gold Loans Gain Momentum
Retail loan growth stood at 11.8% YoY and 0.6% MoM in January. Notably, unsecured retail lending in consumer durables saw a contraction of 2.6% YoY, a sharp contrast to previous growth rates of 13-15%. Personal loan growth also remained sluggish at under 10%. Sequentially, unsecured retail lending showed weaker traction, accounting for 31% of retail credit and ~10% of overall credit.
Among secured retail loans, housing loans grew by 11% YoY, comprising ~51% of retail loans. Vehicle loans saw a modest improvement, registering a 9.7% YoY growth but remained flat MoM. Education loans, on the other hand, exhibited strong momentum, increasing by 15.9% YoY and 2.0% MoM.
The standout performer in retail lending was gold loans, which surged by over 75% YoY. This significant jump is attributed to a low base and recent regulatory changes. The sharp rise in gold loans makes this a crucial segment to monitor going forward.
Services Sector Maintains Growth; NBFC Lending Remains Weak
The services sector continued to hold up, growing 12.5% YoY and 1% MoM. However, the performance within this sector remained mixed. The NBFC segment posted a muted 7.7% YoY growth, with HFCs witnessing a decline, whereas PFIs continued to expand. Aviation and retail trade experienced a sequential slowdown, while other sub-segments maintained stability.
Industrial Lending Struggles Amid Weak Capex Cycle
Industrial loan growth remained sluggish at 8% YoY and 0.5% MoM. While micro and small enterprises, as well as large industries, posted MoM growth of 1% and 0.5% respectively, medium enterprises saw a decline of 0.6% MoM.
Sector-wise, petrochemicals and food processing showed relatively better traction. However, the broader outlook for industrial credit growth remains dependent on a revival in the corporate capital expenditure (capex) cycle. As private sector capex remains subdued, any significant recovery in industrial lending appears to be some time away.
Outlook
The overall lending landscape in India continues to face headwinds, with retail loan growth slowing, industrial credit remaining subdued, and NBFC lending showing weak traction. While services continue to provide some stability, the strong surge in gold loans highlights shifting borrowing patterns. Going forward, much will depend on the RBIโs policy measures and the broader economic environment to stimulate credit demand across key segments.
