‘At 14%, bank credit growth seen to moderate but adequate in FY25’
CRISIL Ratings expects healthy bank credit growth in scal 2025, but moderate at about 14% compared with about 16% in scal 2024 and 15.9% in scal 2023.
In scal 2025, bank credit growth is set to moderate due to four factors — slower growth in gross domestic product (GDP) at 6.8% compared with about 7.6% in scal 2024; the high-base e©ect of scal 2024; decreased growth in unsecured retail loans; and deposit growth lagging credit growth.
To be sure, larger capital expenditure would provide some tailwind.
But the Reserve Bank of India’s move in November to raise risk weights on unsecured consumer credit and bank lending to higher-rated non-banking nancial companies (NBFCs) is an overhang.
These two segments were among the fastest growing for banks in recent years. While the revised norms have already impacted bank credit to NBFCs, growth in unsecured credit will temper over the next few months.
Benign outlook
Asset quality trends are benign, with gross non-performing assets (NPAs) expected to decline from 3.9%, as on March 31, 2023, to about 2.5% in 2025.
Fundamentally, corporate India is on stronger footing, given the secular deleveraging over the past few scals — the median gearing will likely remain benign at about 0.5 times for this scal. Asset quality in the micro, small and medium enterprises (MSME) segment has also improved. However, the segment remains vulnerable to economic cycles.
Retail loan NPAs are seen range-bound while there could be uptick in unsecured-loan NPAs.
Capital adequacy
The banking sector has adequate bu©ers in terms of capitalisation and set for medium-term growth.
It is important to ensure deposit growth does not greatly lag credit growth, with the di©erential narrowing to 300 basis points (bps) in scal 2024 from 500 bps in scal 2023, given the increase in deposit interest rates.
(The writer is Senior Director, CRISIL Ratings Ltd.)