According to a recent Crisil report, there is growing concern over a decline in personal loan uptake across the country, signaling potential reductions in consumer spending. The report highlights that the slowdown in bank loan growth, especially in the personal loan segment, could negatively impact urban consumption patterns.
Crisil notes that the lagging effects of the Reserve Bank of India’s (RBI) interest rate hikes are beginning to manifest within the broader economy. Over the past three months, overall bank credit growth has weakened, particularly in the personal loan sector, which is closely linked to urban consumer expenditure.
In October, total bank credit growth dropped to 11.5% from 13% in September—a notable decline. The report also indicated a deceleration across various sectors: agricultural credit fell from 17.7% to 16.4%, and industrial sector credit decreased from 9.7% to 8.9%.
The services sector witnessed a slight reduction, with credit growth dipping to 13.7% from 13.9%, while personal loan growth, a significant contributor to consumer spending, slowed to 13.4% from 13.9%. Additionally, growth in credit card usage, which often fuels urban spending, fell sharply from 19.9% to 18%.
Credit to non-banking financial companies (NBFCs) also declined significantly, from 11.9% to 9.5%, influenced in part by the RBI’s recent measures to address high-risk lending practices. This contraction in credit could limit urban households’ access to personal loans and credit cards, potentially curbing their spending on both essential and discretionary items.
Crisil’s report suggests that the RBI may be cautious about implementing rate cuts until the full impact of the credit growth slowdown is assessed. “The RBI will want to get clarity on these risks before cutting rates. Overall, we expect one rate cut from the RBI this fiscal year,” the report concluded.
