Bank credit growth to moderate, off a high base, driven by expected decline in GDP growth this fiscal to 6% year-on-year from 7.2% last fiscal, credit rating agency CRISIL said on Tuesday.
It is likely to remain healthy, despite moderating to 13.0-13.5% this fiscal from 15.9% last fiscal on the back of relatively lower economic growth.
The report highlighted that the Corporate and MSME credit growth is expected to be slower, while retail credit is expected to continue to grow at a healthy clip. That said, pace of deposit growth will bear watching.
Wholesale credit to slow after having witnessed a significant pick up in 2023 which was driven by inflation-linked higher working capital requirements and bond market substitution, the report added.
Retail segment, demand for home and vehicle loans should be steady, but unsecured loans are expected to grow faster.
“Our credit quality outlook remains positive with upgrades expected to outnumber downgrades for the rest of this fiscal, too. But downside risks have increased with inflation obstinately high and major central banks hawkish on interest rates. While growth worldwide has been holding out, the impact of a likely global deceleration on export-oriented sectors (especially goods exports) needs watching,” said Somasekhar Vemuri, Senior Director, CRISIL Ratings.
“Closer home, erratic rainfall, high food and crude oil prices can stoke inflation and dampen demand, particularly in the rural and semi-urban markets,” he added.
Comfortable asset quality to support profitability
The CRISIL report further highlighted that the overall gross NPAs to continue to trend down after touching decadal low as of March 2023 – However, retail loan delinquencies to marginally rise from current lows by 20-25 bps; sharp spike unlikely despite rising share of unsecured loans.
Both banks and NBFCs could see a marginal compression in net interest margin because of higher deposit and borrowing costs, respectively, even as credit costs trend lower.
Profitability to remain steady even as NIMs compress 10-20 bps this fiscal as deposit rates catch up; credit costs to provide an offset, it highlighted. Capital buffers also remain comfortable to support growth.
Gross non-performing assets (NPAs) of banks are expected to fall to ~3% by March 2024. While retail NPAs could see a 20-25 bps uptick, it will remain below 2%.
