Retail lending fuels growth
India’s banking sector demonstrated resilience in November 2024, with non-food credit growth reaching 12.2% year-over-year and 1.3% month-over-month, according to a new report from HSBC Global Research. This marks an improvement from October’s more modest 0.7% monthly growth rate, suggesting a potential turning point after five months of moderate expansion.
The recovery is broad-based across multiple lending segments, with retail lending emerging as a particular bright spot. Retail loans grew by 13.3% year-over-year and 1.5% month-over-month, driven by strong performance in several key categories. Home loans maintained steady growth at 12.2% annually, while credit card receivables showed impressive momentum, expanding 18.1% compared to the previous year’s figures.
The MSME sector also showed robust growth at 13.8% year-over-year, while corporate lending increased by 9.6% annually. A notable development has been the surge in gold loans, which rose 6.7% month-over-month and accounted for 12% of November's incremental retail loans. HSBC analysts suggest this trend may reflect a shift in borrowing patterns, with gold loans increasingly serving as an alternative to traditional microfinance options.
However, the outlook isn’t uniformly positive. Vehicle loans experienced a 1.8% month-over-month decline, primarily due to sluggish vehicle sales.
Looking ahead to FY25, HSBC projects credit growth to remain range-bound at 12.5%, though several potential headwinds could impact this forecast. These challenges include tight liquidity conditions, muted deposit growth, and high loan-to-deposit ratios across the banking sector.
The report emphasised that while the current stabilisation is encouraging, the sector’s performance remains vulnerable to broader macroeconomic factors, particularly any potential slowdown in GDP growth, which could affect overall credit demand and growth trajectories.
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