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New Delhi: Rating agency CRISIL has recently released a report on bank credit growth. Based on which, it has been revealed that recently there has been a slowdown in bank credit growth, especially in personal loans, which may affect consumption in urban areas.

The report indicated that the delayed impact of previous interest rate hikes by the Reserve Bank of India (RBI) is beginning to be reflected in the broader economy, with bank credit growth decelerating in the last 3 months. This slowdown is particularly worrying for the personal loan segment, which has a direct link to consumer spending in urban areas.

consumption in urban areas

The report said that the delayed impact of previous rate hikes by the RBI is gradually being felt in the broader economy. Bank credit growth has been slow in the last 3 months, including personal loans. This is likely to impact consumption especially in urban areas.

Credit to industrial sector

The report highlights that in October, overall bank credit growth slowed to 11.5 per cent from 13 per cent in September, marking a significant deceleration. Sector-specific data for September shows credit growth slowed across many categories. For example, growth in agricultural credit slowed to 16.4 percent from 17.7 percent, while credit to the industrial sector fell from 9.7 percent to 8.9 percent.

under personal loan

Similarly, credit growth to the services sector slowed slightly to 13.7 per cent from 13.9 per cent and growth in personal loans, an important driver of consumer spending, slowed to 13.4 per cent from 13.9 per cent. According to the report, a closer look under personal loans shows that credit card growth, which largely drives discretionary spending, slowed to 18 per cent from 19.9 per cent.

Personal Loan and Credit Card

Credit growth to non-banking financial companies, or NBFCs, a component of the service sector, also slowed significantly to 9.5 percent from 11.9 percent, partly due to the RBI's recent crackdown on risky lending practices. This credit slowdown could have a significant impact on urban consumption, as many urban households rely on personal loans and credit cards for both essential and non-essential purchases.

loans to urban consumers

Curbs in credit growth could lead to urban consumers facing reduced access to credit, potentially curtailing their spending and impacting overall economic momentum. The report suggested that the RBI may wait for further clarity on the extent of risks posed by the slowdown in credit growth before considering a rate cut.

Clarity about risks

It said the RBI may want to get clarity about these risks before making a rate cut. Overall, we expect one rate cut by the RBI this financial year.