As reported by The Financial Times, India’s banking sector is grappling with slower credit growth and rising bad debts following the Reserve Bank of India’s (RBI) measures to curb “exuberant” retail lending. This crackdown, aimed at reducing risky unsecured loans, has contributed to a notable slowdown in the growth of retail credit, with concerns about deteriorating asset quality rising.
HDFC Bank, the nation’s largest private lender, reported a 17% increase in provisions for bad loans, while its non-performing assets ratio rose to 1.42%. Other banks, including Axis Bank and RBL Bank, also reported weaker-than-expected results, with Axis Bank’s retail lending growth dropping significantly from 27% to 11% year-on-year in the latest quarter.
The RBI’s interventions are starting to show results, with annual retail lending growth falling from nearly 27% to 13%. The central bank’s focus on tightening unsecured lending follows a surge in household debt, with many families taking on easily accessible credit. However, analysts are concerned about potential economic fallout, as slowing credit growth could drag down the broader economy.
Despite these challenges, some banks like Kotak Mahindra Bank saw a profit rise, though provisions for bad loans also increased. The overall sector is facing investor unease, with the Nifty Banking Index falling 5.3% in the last month. The banking industry is also feeling pressure from tight liquidity conditions and the RBI’s efforts to stabilize the currency through increased dollar sales.
