June 2024 Sees Sharp Drop in Credit Growth Amid Sectoral Slowdown

Credit growth in June 2024 dropped to 17.4% from 20.8% in May, driven by declines in demand deposits and moderated time deposits. Interbank liquidity showed improvement, while investment and sectoral credit growth slowed notably. NIMs slightly expanded for outstanding loans but decreased for new loans.

Credit growth in June 2024 fell sharply to 17.4%, down from 20.8% in the previous month, according to a report by Anandrathi. Over the past year, credit offtake expanded by Rs. 20.4 lakh crore, while deposits grew by Rs. 23.9 lakh crore, Care Edge noted. A strong drop in demand deposits and moderated growth in time deposits were key factors in the decline.

The report also mentioned that although interbank liquidity remained in deficit, it improved from May due to increased government spending. Investment growth remained subdued, staying below the average for six consecutive months. Credit growth across various sectors also slowed down in June after rising in May.

Specifically, the industrial sector saw slower growth, with credit to infrastructure dipping due to issues in power, telecommunications, and roads. Excluding infrastructure and services, industrial growth was at 9.7%, but fell to -0.1% in June. Infrastructure growth also declined from 7.2% in May to 5.5% in June.

The services sector's growth rate fell from 22.8% in May to 17.4% in June. Personal loans grew at 28.8% in May but dropped to 25% in June, while agriculture's growth rate went from 21.5% in May to 17.4% in June.

Despite weakening personal loans, gold loans increased due to high gold prices. Net interest margins (NIMs) on outstanding loans expanded slightly, with the Weighted Average Lending Rate (WALR) rising to 2.98% from 2.94% in May. However, NIMs on new loans decreased as lending rates fell. NIM represents the net interest income a lender earns from credit products, minus what it pays on savings accounts and CDs.

The report anticipates that NIMs will remain under pressure, but expects improvements in the liquidity situation due to ongoing government spending and higher capital flows, potentially easing interbank liquidity stress.