Crisil Report: People avoiding taking personal loans; Fear of reducing consumption expenses

New Delhi| People in the country have started avoiding taking personal loans. Due to this, the possibility of reduction in consumption expenditure in the economy has increased. The recent slowdown in the growth of bank loans, especially personal loans, may impact consumption in urban areas. This has been said in a CRISIL report. According to the report, the delayed impact of interest rate hike by the Reserve Bank of India (RBI) is becoming visible in the broader economy, with bank credit growth slowing in the last three months.

This slowdown is especially the case with personal loans, which is worrying. This is directly related to consumer spending in urban areas. “The delayed impact of RBI’s past rate increases is gradually being felt in the broader economy”, the report said. Bank credit growth has been slow over the past three months, including personal loans. This is likely to affect consumption, especially in urban areas”

The report also noted that overall bank credit growth in October declined from 13 per cent to 11.5 per cent compared to September, reflecting a significant decline. Sector-specific data for September shows that credit growth declined across several categories. For example, the growth rate of agricultural credit declined from 17.7 per cent to 16.4 per cent, while credit to the industrial sector declined from 9.7 per cent to 8.9 per cent.

Similarly, credit growth in the services sector declined slightly from 13.9 per cent to 13.7 per cent, and individual credit, an important driver of consumer spending, showed an increase from 13.9 per cent to 13.4 per cent. A closer look at the personal loan category shows that credit card growth, which largely boosts spending, declined sharply from 19.9 percent to 18 percent, according to the report.

Credit growth for non-banking financial companies (NBFCs), a component of the services sector, also declined significantly from 11.9 per cent to 9.5 per cent, partly because of recent action on risky lending practices on the part of RBI. This slowdown in debt can have a significant impact on urban consumption, as many urban households rely on personal loans and credit cards for both essential and non-essential purchases.

With credit growth curbed, urban consumers may face reduced access to credit, potentially cutting their spending and affecting overall economic momentum. The report suggests that the RBI may wait for further clarity on the extent of risks posed by the slowdown in credit growth before considering rate cuts. According to the report, “RBI would like to get clarity about these risks before cutting rates”. Overall, we expect a rate cut from the RBI this financial year”.