After clocking a robust 15.9% last fiscal on broad-based economic recovery, stronger, cleaner balance sheets and the lower base of the preceding two fiscals, bank credit growth is likely to moderate to 13-13.5% this fiscal and improve a tad to 13.5-14% in fiscal 2025 as economic growth picks up.
A key monitorable which will determine credit growth going forward is the extent to which deposit growth picks up for banks, Crisil Ratings said.
The moderation this fiscal will be because of four reasons including an expected decline in gross domestic product (GDP) growth this fiscal to 6% on-year from 7.2% last fiscal, which will impact overall credit growth.
Two, easing of inflation with some softening in commodity prices, which will reduce the demand for working capital and hence credit.
Third, bank credit’s substitution of debt capital markets, which also supported wholesale credit growth last year, especially in the first half, is not being seen to the same extent this year.
Fourth, given the strong growth in fiscal 2023, especially in the second half, the high-base effect will also be a factor.
Within overall bank credit, growth in wholesale credit (60% of overall credit) is likely to slow to 11-11.5% this fiscal from a decadal high of 15%. On the other hand, retail credit (28% of overall credit), is expected to continue to grow at a healthy clip of 19-20%, similar to last fiscal.
Krishnan Sitaraman, Senior Director and Chief Ratings Officer, Crisil Ratings, said, “In fiscal 2025, overall credit growth trends should see a turnaround and start inching up on the back of an expected improvement in GDP growth to 6.9%. Within this, wholesale credit growth is likely to see a modest increase to 11.5-12%, while retail should remain the key growth driver, expanding steadily at 19-20%. Agriculture credit growth should remain range-bound at 9-10%.”
Segment-wise growth
Next fiscal, growth in corporate credit (45% of bank credit) is likely to pick up from the current fiscal level. The revival in private industrial capex is slower than expected but higher capacity utilisation levels and capex announcements are encouraging from the perspective of a ground-level pickup in capex next fiscal. On the services side, demand from non-banks should continue to support corporate credit growth as they are themselves seeing decent growth tailwinds.
In the MSME segment (15% of overall credit), credit demand should be steady hereon given MSMEs’ role in the government’s Atmanirbhar Bharat initiative and the flow-through impact of the productivity-linked incentive scheme.
Further, with steady push for formalisation of the sector, including improving digital public infrastructure, the addressable base for banks should increase over the medium term.
Retail credit growth should remain robust at 19-20% next fiscal, similar to the previous two fiscals. “Demand for home loans (the largest sub-segment of retail credit) should be steady with increasing preference for home ownership and better affordability despite higher rates. Unsecured loans (both personal loans and credit cards) are expected to grow faster, driven by greater digitalisation of financial transactions, shift to organised credit, and increasing comfort with borrowing for discretionary spending,” Crisil said. Higher yields and expectation of credit costs remaining within acceptable levels will also be drivers.
