INTRODUCTION

The loan growth rate of Indian commercial banks refers to the rate at which these
banks are expanding their lending activities over a given period of time. This growth rate is
usually expressed as a percentage and can be used as an indicator of the overall health and
performance of the banking sector in India.
A higher loan growth rate suggests that Indian commercial banks are expanding their
lending activities and providing more credit to individuals and businesses, which can be seen
as a positive sign for the economy. However, a rapid increase in lending can also pose risks
such as higher levels of non-performing loans, which can impact the stability of the banking
system and the wider economy.
The loan growth rate of Indian commercial banks is influenced by various factors
such as monetary policy, economic conditions, market competition, and regulatory policies.
As such, it is closely monitored by policymakers, investors, and analysts as an important
indicator of the overall health of the Indian banking sector.

IMPLICATIONS OF BANK LOAN GROWTH RATES

The implications of bank loan growth rates can vary depending on the rate and the
broader economic conditions. Here are some potential implications:
Economic growth: A higher bank loan growth rate can indicate that there is increased
demand for credit, which can stimulate economic activity and growth. Conversely, a low
bank loan growth rate can suggest a lack of investment and slower economic growth.
Bank profitability: A higher bank loan growth rate can lead to increased revenue and
profitability for the bank, as long as the loans are being paid back on time. Conversely, a low
bank loan growth rate can limit the bank's revenue and profit potential.
Risk management: A very high loan growth rate can suggest that the bank is taking on too
much risk, leading to potential credit losses and other negative impacts. A very low loan
growth rate can indicate that the bank is being overly cautious, potentially missing out on
opportunities for growth and profit.
Interest rates: Bank loan growth rates can influence the direction of interest rates. If loan
growth is high, the central bank may increase interest rates to slow down the economy and
control inflation. Conversely, if loan growth is low, the central bank may lower interest rates
to stimulate borrowing and economic activity.
Non-performing loans: A very high loan growth rate can increase the risk of non-performing
loans, which can harm bank profitability and stability. Conversely, a low loan growth rate can
suggest that the bank is being conservative and avoiding bad loans, leading to a lower rate of
non-performing loans.
INDIAN BANK’S LENDING PATTERNS OVER LAST TEN YEARS
The lending and borrowing of commercial banks has stagnated for more than 10
years now. Along with this, Indian banks are getting more interested in giving out retail loans
than industrial loans. Further, private banks have been gradually gaining market share. As of
March 2001, the total outstanding loans of Indian banks stood at ₹5.1 trillion, or 23.9% of
the country’s annual gross domestic product (GDP) of the time. By September 2022, the
figure had grown to ₹130.4 trillion, or 50.3% of GDP. While the growth appears to be sharp,
the interesting thing is that the size of Indian banking has been stagnating for over a decade
now. The lending of banks has remained around 50-53% of the GDP since March 2009 (with
2020-21 being an exception due to covid-19), and deposits have remained between 67-70%.
Higher retail lending
For decades, banks used to lend majorly to industry, but that has been changing. As
of end-March 2013, the bank lending to industry peaked at 22.4% of the GDP. It has since
fallen, and as of September 2022, stood at 12.5%. In absolute terms, the bank lending to
industry has grown by just 4% per year during the period. In comparison, as of September
2022, the retail loans of banks stood at 14.3% of the GDP, up from 9% in March 2013. In
absolute terms, the outstanding retail loans have grown at the rate of 16.1% per year
between March 2013 and September 2022. Clearly, banks increasingly want to give out
more retail loans than industrial loans. The major reason for this is that public sector banks
had gone overboard giving out industrial loans in the 2000s and early 2010s. This led to a
massive accumulation of bad industrial loans a consequence they’ve grown wary of. The
below stat shows the loan growth rate to various sectors during the period of 2017 to 2019.
CURRENT TREND OF LOAN GROWTH RATE OF INDIAN BANKS
The loan growth rate of Indian banks started to rise steadily from 11.1% in May 2023.
It reached a peak of 18% in Oct 2022 which is comparatively the highest growth rate in past
10 years. From there, again it started to slowed down significantly overs the last six months.
Currently it stands at 15% as of April 2023. The below chart depicts the changes in the loan
growth rate of Indian banks for the past one year.

REASONS FOR SLOWDOWN IN GROWTH RATE

Reduced demand and supply: Credit growth at Indian banks has dropped to its lowest level
in nearly two years, the latest Reserve Bank of India (RBI) data shows, as slowing domestic
consumption weighs on demand. The slowdown in credit growth this time is a result of both
reduced demand and supply.
Liquidity crunch: India’s lending problems have been compounded by a drying up of liquidity
in the shadow banking sector last year after the collapse of infrastructure lending group
IL&FS. While some major non-banking financial companies (NBFCs) have been going slow on
lending, others stopped completely. However, banks have not used this opportunity to win
market share from NBFCs, which accounted for 30% of auto loans and more than 40% of
home loans until the end of last year.
Non-performing Assets: Non-performing assets or bad loans can also be a reason for the
slowdown in loan growth, as banks become more cautious about lending money to
individuals or businesses with a history of defaulting on loans
CONCLUSION
India's banking sector outlook is expected to remain stable and is supported by
economic growth and improved financials. The asset quality of banks is expected to be
stable, and non-performing loan (NPL) ratios will decline modestly because of recoveries and
write-offs of legacy problem loans. A credit-deposit ratio above 75% indicates pressure on
banks' resources as they have to set aside funds to maintain a cash reserve ratio of 4% and a
statutory liquidity ratio of 18.5%. A high credit-deposit ratio has been one of the key reasons
why banks have struggled to cut interest rates. But with credit growth falling faster than
deposit growth, banks may have a bit more room to transmit rate cuts. With all these
implications happening in the Indian banking sector, loan Growth in India is expected to be
around 14.00 percent by the end of this quarter. In the long-term, the India Bank Loan
Growth is projected to trend around 7.50 percent in 2024 and 6.50 percent in 2025