Rising Bank credit:  Bank credit to the agriculture sector continued to register double-digit growth, reaching its highest level since the Covid-19 pandemic during Q3 of 2023- 24, the RBI said in its latest bulletin. Similarly, the bank credit to industry also witnessed a pick-up to record a five-quarter high. “Bank credit to the housing sector continued to grow in double digits, albeit with some sequential moderation. The growth in nonhousing personal loans, which peaked at 27.2 per cent in Q2 of 2022-23, declined to 19.8 per cent in Q3 of 2023-24,” the RBI added. 

Real Estate Momentum

Bank credit to the housing sector maintains its upward trajectory, albeit with a slight moderation. This sustained growth reflects ongoing demand in the real estate market, showcasing adaptability amid evolving market conditions. Also, credit to the private corporate sector experiences a sharp acceleration, underscoring the sector's vitality in driving overall bank credit. However, a deceleration in working capital loan growth hints at shifting dynamics within the corporate landscape.

Repo Rate Ramifications

The RBI added that the hike of interest by 250 basis since May 2022 has translated into noticeable rises in lending rates, as evidenced by increases in median marginal cost of funds-based lending rate (MCLR) and weighted average lending rate (WALR) on fresh and outstanding rupee loans.

“Consequently, the weighted average lending rate (WALR) on fresh rupee loans increased by 194 bps and that on outstanding rupee loans rose by 113 bps from May 2022 to January 2024,” the RBI added.  

Differential Transmission

Interestingly, the transmission of rate hikes varies between public sector banks (PSBs) and private banks (PVBs), with PSBs showing a more pronounced pass-through to lending rates. Moreover, PSBs demonstrate a relatively greater increase in deposit rates compared to their private counterparts.

Reflecting the impact of policy rate adjustments, there's a marked rise in the share of bank loans bearing interest rates over 8.0 per cent, signalling a broader shift in lending dynamics.

According to the bank,  credit to the private corporate sector, which accounted for nearly a quarter of the total bank credit, recorded a sharp acceleration in the second and third quarters of 2023-24. But working capital loan growth, however, recorded some deceleration.