Bank credit expansion projected at 15% in FY24, 12% in FY25: ICRA

Rating agency Icra on Wednesday revised upward its bank credit growth projection at 14.9-15.3 per cent this fiscal, but said the same will lose steam and grow at 12 per cent next fiscal.

At 14.9-15.3 per cent, the system level credit expansion in absolute terms will be Rs 20.4-20.9 trillion, it said, adding this will be the highest ever incremental bank credit growth and would surpass the previous high of Rs 18.2 trillion recorded in FY23 at a growth rate of 15.4 per cent.

The agency had earlier estimated a 12.8-13 per cent credit demand for this fiscal.

However, citing the rising global headwinds and also the higher base coupled with the challenges in deposit mobilisation, the agency said it expects the rate of incremental credit expansion to slow down to Rs 19-20.5 trillion or 11.7-12.6 per cent in FY25.

 

Weaker export demand in certain sectors, softer commodity prices, and challenges in deposit mobilisation could temper bank credit growth in FY2025, it added.

Further, the agency estimates corporate bond issuances to reach Rs 9.6-9.9 trillion in FY24, crossing the record level of Rs 8.7 trillion in FY23.

Incremental bank credit growth touched nearly Rs 16.9 trillion in the first nine months of FY24 far outpacing the Rs 14.1 trillion expansion in the corresponding period last year. This was driven by the retail segment and non-bank finance companies, with annual growth of 33 per cent and 23 per cent, respectively, as of November 18, 2023.

While incremental bank credit growth remained reasonably strong at Rs 6.1 trillion in Q3 and Rs 10.8 trillion in the first half of FY24, it was lower by Rs 1.3 trillion in December 2023 against Rs 2 trillion during December 2022.

According to Anil Gupta, a senior vice-president at the agency, the relative deceleration in bank credit expansion seen during December 2023 reflects the regulatory measures on increased risk-weights on loans extended to consumer credit and non-banking finance companies, apart from the tight liquidity conditions.

This bank credit growth is also going to be accompanied by a record incremental deposit mobilisation in FY24, with the highest ever build-up at Rs 21.7-22.3 trillion (Rs 19.2 trillion for the nine-month period of FY24 and Rs 15.8 trillion in FY23).

This was driven by a record accretion of Rs 11.2 trillion in Q1 FY24, partially supported by withdrawal of the Rs 2,000 currency note.

The incremental ask for banks to keep ramping up deposits to bridge the gap with credit growth would remain a challenge, despite the anticipated relative moderation in credit growth in FY25.

Amid tight liquidity conditions, banks could increase dependence on non-deposit resources, including debt capital market instruments and refinance from financial institutions in the interim. Accordingly, in the absence of one-offs, deposit mobilisation is expected to moderate to Rs 19.4-20 trillion in FY25 or a growth of 9.5-9.8 per cent, down from 12-12.3 per cent estimated for FY24.

With high credit flow to NBFCs from the banking sector, growth in assets under management is also expected to remain robust at 14-16 per cent in FY24 compared to earlier estimates of 13-15 per cent. With higher base and expectation of a tighter liquidity, growth is expected to moderate to 13-15 per cent in FY25.

AM Karthik, a senior vice-president, said, within NBFCs, the retail asset under management (excluding housing finance companies) is expected to grow 21-23 per cent in FY24 but moderate to 17-19 per cent in FY25.