Gold loan growth surged by 83 percent year-on-year in October, significantly outpacing core retail credit growth, according to a recent report by Dolat Capital, remaining a key driver for overall banking sector credit expansion in India.
Gold Loan Growth Outpacing Retail Credit
Gold loan growth in the banking sector stood at 83 per cent year-on-year in October, significantly higher than core retail credit growth, despite some moderation in monthly disbursements, according to a report by Dolat Capital. The report said that although gold loan disbursements have moderated on a month-on-month basis, the segment continues to record strong annual growth, making it one of the key drivers of bank credit expansion.
Overall, credit growth in the banking system stood at 18.2 per cent year-on-year in October, while deposit growth was lower at 16.7 per cent as of October 15. Lending to non-banking financial companies (NBFCs), small and medium enterprises (SMEs) and corporates has also increased, contributing to credit expansion. It said, “There has been some moderation in gold loan disbursements, but growth (83 per cent y-y) remains higher than core retail”.
Sectoral Performance and Corporate Borrowing
Among industrial sectors, engineering recorded credit growth of 36 per cent year-on-year, followed by chemicals at 26 per cent, power at 23 per cent and metals at 19 per cent. The report said higher volatility in bond yields could lead to greater dependence on bank borrowings by companies until market conditions stabilise. This could support lending to corporate borrowers.
Banking System Liquidity and Deposits
The report also highlighted that credit growth continues to outpace deposit growth, pushing the banking system’s credit-deposit ratio to 81.6 per cent. The incremental 12-month credit-to-deposit ratio stood at around 88 per cent. However, Foreign Currency Non-Resident (FCNR) deposits have helped improve the deposit position of banks. According to the report, FCNR deposits have contributed around 450 basis points to deposit flows, bringing the gap between credit and deposit growth down to 150 basis points. This gap is expected to decline further, given the high loan base in the second half of the financial year.
The report expects banks to have sufficient liquidity headroom to support credit growth around 200 basis points higher than deposit growth in FY28, supported by deposit supply trends and decent Liquidity Coverage Ratio (LCR) levels. The report said that deploying these additional deposits could increase banks’ loan-to-deposit ratios compared with FY26 levels and support net interest income growth, even if the deployment does not improve net interest margins.
Public vs Private Sector Bank Interest Rates
The report also highlighted differences between public and private sector banks in passing on interest rate changes. While the transmission of repo rate changes on repo-linked loans is expected to be broadly similar, public sector banks may take longer and pass on a lower proportion of rate changes through their MCLR rates compared with private sector lenders. (ANI)
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