The ongoing ‘retail-shift’ by banks may not be structural: RBI Bulletin

Based on the estimated credit cycle of the retail bank, the ongoing ‘retail shift’ may not be permanent, but is cyclical in nature and credit growth may not continue to pick up, according to an article in RBI’s latest monthly bulletin.

Scheduled Commercial Banks (SCBs) outlook on retail credit demand was moderate Tightening of loan terms and conditions is expected in Q3 (October-December): 2024 Reserve Bank of India officials Sujesh Kumar and Manjusha Senapati said in an article titled “Retail Credit Trends – a glimpse.”

Bank credit to individuals has emerged as a major contributor to the growth of total bank credit, especially after the onset of the Covid pandemic.

The retail credit due at the end of March 2023 was ₹40.85 crore, more than double that in March 2018.

The share of retail loans provided by the Savings and Credit Bank increased from 24.8 percent in March 2018 to 30.7 percent in March 2022 and then to 32.1 percent in March 2023 – the highest among sectors.


An empirical analysis using quarterly data for the period from Q1:2008 to Q3:2022 indicates that the retail credit sector and its major components (housing and vehicle) are sensitive to interest rates as well as the asset quality of banks’ loan portfolio, officials said.

They added that home loans are more sensitive to both interest rates and asset quality than car loans for the same period.

So far, the sector’s relatively better asset quality may have fueled retail credit growth. Given the global headwinds and increasing uncertainties about monetary policy actions across geographies, Kumar and Senapati said, it is necessary to assess trends in retail credit at a granular level on an ongoing basis to assess the impact of financial sector developments on the overall economy.

Officials note that the rise in retail loans did not happen suddenly in the post-Covid period.

They emphasized that the share of industries was replaced by the retail sector during the past decade itself. Gradually, a “retail turnaround” is observed in terms of credit growth dynamics.

On the banking front, there has been a low dispersion of retail credit growth in the post-covid period, which means that credit growth has been strong across banks.

  • Read also: Banks end FY23 with strong credit growth of 15.4 percent

“The higher credit growth in this sector may be due to the ‘grazing behavior’ exhibited by banks in shifting loans from the industrial sector to the retail sector… It also appears that better asset quality in the retail sector contributes to banks’ greater focus on retail credit.

“However, this is neither a risk-free sector nor a panacea for asset quality concerns in non-retail loans…,” said the authors.