Business Standard

India's bank credit growth likely to moderate to 13-13.5% in FY24: CRISIL

"The extent to which deposit growth picks up would determine credit growth for banks," said Subha Sri Narayanan, Director at CRISIL Ratings

CRISIL

CRISIL

Abhijit Lele Mumbai

Listen to This Article

After clocking a robust 15.9 per cent growth in FY23, the bank credit growth in India is likely to moderate to 13-13.5 per cent in the current financial year (FY24). It will improve to 13.5-14 per cent in the next financial year (FY25) as economic growth picks up, according to rating agency CRISIL.

The strong growth in the last financial year (FY23) came on the back of broad-based economic recovery, stronger, cleaner balance sheets and the lower base of the preceding two financial years.

Within overall bank credit, growth in wholesale credit (~60 per cent of overall credit) is likely to slow to 11-11.5 per cent this financial year from a decadal high of 15 per cent. On the other hand, retail credit (~28 per cent of overall credit) is expected to continue to grow at a healthy clip of 19-20 per cent, similar to the last financial year, CRISIL said.
 
"The extent to which deposit growth picks up would determine credit growth for banks," said Subha Sri Narayanan, Director at CRISIL Ratings.

"We expect the differential between credit growth and deposit growth to narrow to about 200 basis points from about 500 basis points seen in financial year 2023 as deposit rates continue to inch up." The competition for deposits among banks will be par for the course, and banks may be walking the tightrope between deposit growth and protecting margins depending on their ability to mobilise cost-effective deposits, he added.

Dwelling on the trend in credit growth, CRISIL said the moderation this financial year will be because of four key reasons. One, an expected decline in Gross Domestic Product (GDP) growth this financial year to 6 per cent year-on-year from 7.2 per cent last financial year, which will impact overall credit growth.

Two, easing of inflation with some softening in commodity prices. A significant part of growth in wholesale credit last financial year was driven by higher working capital demand in a high-inflation environment. Going forward, inflation levels are expected to be lower than that seen last financial year.

Third, bond market issuances have been robust in the first half of this financial year with the change in interest rate environment. Consequently, 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 financial year 2023, especially in the second half, the high-base effect will also be a factor, CRISIL added.

Don't miss the most important news and views of the day. Get them on our Telegram channel

First Published: Sep 28 2023 | 4:45 PM IST

Explore News