The proportion of loans with an interest rate of over 9 percent increased to 56.1 percent in March 2023, according to a report released by the Reserve Bank of India (RBI). This rise in interest rates was in line with the monetary tightening measures that began in May 2022, as the central bank attempted to curb inflation following global supply disruptions caused by the Russia-Ukraine war. Since May 2022, the benchmark short-term lending rate has increased by 250 basis points. However, the RBI did not raise the rate in its most recent two bi-monthly monetary policy reviews.
The report, titled Basic Statistical Return on Credit by Scheduled Commercial Banks in India – March 2023, highlighted the impact of these monetary tightening measures on the share of loans with high interest rates, stating that the percentage had risen from 31.4 percent in March 2022 to 56.1 percent in March 2023. It also noted that all population groups witnessed significantly higher credit growth in the fiscal year 2022-23.
Metropolitan branches of banks experienced a notable acceleration in lending, with an annual growth rate of 15.2 percent in 2022-23, compared to 9.2 percent growth in the previous year and just 1.4 percent growth in 2020-21. Additionally, rural, semi-urban, and urban branches recorded double-digit growth in lending during these three years.
The report also highlighted the robust growth of personal loans in recent years, revealing that their share of total bank credit had risen to 28.2 percent in March 2023, up from 21.3 percent five years ago.
However, despite this overall growth, industrial loan growth remained relatively low compared to the growth in total credit. The industrial sector’s share of total bank credit has declined from 34.7 percent five years ago to 25.0 percent in March 2023.
In conclusion, the report from the RBI indicates that the share of loans with an interest rate higher than 9 percent has increased significantly in recent years. This is in line with the monetary tightening measures implemented by the central bank to address inflation concerns following global supply disruptions. The report also highlights the strong growth of personal loans, while pointing out the relatively slow growth in industrial loans compared to overall credit growth. These findings provide valuable insights into the lending landscape in India and serve as a reference for policymakers and lenders in the country.
