Advantage PSBs: Private Bank Credit Growth Falls Off A Cliff

Private banks' loan growth in the December quarter slowed considerably as lenders go slower on retail lending, both secured and unsecured.

While credit growth rates for both public and private banks have slowed, private banks seem to be cutting back much faster than their state-owned peers.

Loans by government banks rose 12.3% year-on-year to Rs 94.6 lakh crore in the quarter ended Dec. 31. Private banks saw a much slower 10.5% growth, with their outstanding loans at Rs 73.4 lakh crore, according to data available with the Reserve Bank of India.

The slowdown in the private-sector-loan growth is much sharper as compared with the April–June quarter when the rate was 27.6%.

A lot of this growth slowdown can be attributed to weaker loan demand among borrowers.

"There is a slowdown in retail loans, but we see this extending from unsecured to retail loans as well (housing loan growth has slowed)," Kotak Institutional Equities wrote in a note this week. "The data also suggests that the corporate capex cycle-led demand for loans remains weak."

RBI's monthly sectoral credit data shows that in January, growth in retail personal loans was at 11.8% year-on-year, compared wtih 28.6% in the year ago period. Home loans rose 11% year-on-year, while credit card loans were up 13%.

Gold loans, which are often looked at as a barometer of retail stress, rose 77% year-on-year in January.

Banks are also facing a slowing deposit growth over the last few fortnights on top of the slowing asset growth. According to data available with the central bank, in the fortnight ended Feb. 7, the deposit growth in the banking sector dropped to 10.6% year-on-year, compared to the 11.2% growth reported for non-food credit.

After a brief period of convergence between deposit and credit growth rates, the gap between the two has widened again. Lower liabilities growth has consistently affected the ability of private banks to ramp up their loan growth.