Unusual Trend in Indian Banking Sector

In a surprising development, Indian banks have disbursed more credit for automobile purchases than for housing in the first quarter of FY26, marking a significant shift in consumer demand and lending patterns.

Key Insights from RBI Data: According to the Reserve Bank of India's sectoral deployment of bank credit data, banks added Rs 2.4 lakh crore to their loan books between April and June. Notably, nearly two-thirds of this growth came from home loans, vehicle loans, and loans against gold jewellery.

Slowdown in Housing Finance

Housing finance, traditionally the main driver of retail lending, experienced a marked slowdown. This was partly due to HDFC Bank growing its mortgage portfolio at a slower pace than the industry average, attributed to increased competition.

Growth in Auto Loans

Auto loans saw a significant rise, with an increase of Rs 29,492 crore during the quarter, bringing the total to Rs 6.52 lakh crore. This represents a 4.7% rise in three months and a 10.8% increase compared to the previous year.

Overall Credit Growth

The overall growth in bank credit was modest, with outstanding loans growing just 1.3% in the quarter. A key factor was the services sector, where loans declined by 0.6%, influenced by a 2.4% contraction in credit to non-banking financial companies.

Gold-Backed Loans on the Rise

Gold-backed loans witnessed the sharpest increase, growing by 28.9% to Rs 2.77 lakh crore, driven by the reclassification of agricultural loans secured against gold into the gold loan category.