 "Banks, NBFCs' credit growth to see steady slowdown in FY25, says ICRA")
The slew of regulatory actions, including a ban on fresh lending by some regulated entities and tighter funding conditions, may lead to a steady slowdown in the credit growth of banks and non-bank financial companies (NBFCs), according to rating agency ICRA.
Incremental bank credit growth is expected to slow down to Rs 19.0-20.5 trillion in FY25 (12 per cent year-on-year (Y-o-Y) growth), compared to Rs 22.3 trillion in FY24 (Y-o-Y growth of 16.3 per cent). For NBFCs, growth in assets under management (AUMs) is expected to slow sharply to 16-18 per cent in FY25 from 25 per cent in FY24.
The recent regulatory actions on certain entities are expected to push others to adjust their business practices and models, which will also have a bearing on near-term growth, ICRA said in a statement.
As a sizeable portion of bank credit flows to NBFCs for on-lending to the retail segments, overall credit to the retail segment may slow down in the next 12-18 months.
While ICRA believes that demand for retail credit remains strong, the regulatory nudge to prevent overheating in certain retail segments is the key factor driving slower growth. This will moderate the NBFC sector’s funding requirement, ensuring adequate funding availability for players in the space.
Amid concerns about overleveraging, ICRA expects asset growth in microfinance loans to moderate to 10-12 per cent in FY25 from 30 per cent in FY24, while growth in the unsecured (personal and business) loans segment will decline to 19-21 per cent in FY25 from 38 per cent in FY24, ICRA added.
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The credit costs of NBFC-MFIs (microfinance institutions) are expected to surge to the 4 per cent level by March 2025 from 2.6 per cent in March 2024 due to rising stress and accelerated write-offs, according to ICRA.
Given the risk aversion of lenders in the unsecured space, the credit demand of borrowers seems to have shifted towards gold loans, resulting in higher 18 per cent Y-o-Y growth (Q1 FY25 and FY24) in gold loans compared to 12 per cent in FY23, it added.