Mumbai, May 28 – In its latest analysis, domestic rating agency Crisil projected a decline in the banking system’s credit growth by 2 percentage points to 14 per cent for the financial year 2024-25. This slowdown is attributed to various factors including a projected lower GDP growth of 6.8 per cent, down from 7.6 per cent in FY24, along with regulatory measures implemented by the Reserve Bank of India (RBI), such as higher risk weights on unsecured loans.
Crisil pointed out that slower deposit accretion could act as a check on credit growth, acknowledging a reduction in the differential between deposit and credit growth over the past year. Despite witnessing a robust 16 per cent growth in bank credit during FY 2024-25, excluding the impact of the HDFC merger, the agency anticipates a tempering of growth in the upcoming fiscal year due to a high base effect, revised risk weights, and slightly lower GDP growth.
However, Crisil emphasized that the fundamental drivers of credit demand remain intact. It anticipates a potential revival in private corporate capital expenditure (capex), particularly in the latter half of fiscal 2025, which could bolster credit growth. The corporate segment, which constitutes 45 per cent of overall loans, is expected to maintain a growth rate of 13 per cent in FY25.
In contrast, retail growth is anticipated to decelerate to 16 per cent from 17 per cent in FY24. While retail will continue to be the fastest-growing segment for banks, the agency foresees a slowdown in unsecured consumer credit growth due to regulatory stipulations and banks’ efforts to fortify underwriting processes to mitigate potential delinquencies.
Crisil’s senior director, Ajit Velonie, highlighted that sectors such as steel, cement, pharmaceuticals, electronics, semiconductors, electric vehicles (EVs), and solar modules are expected to drive the capex recovery, particularly over the medium-term.
The agency also projected a drop in credit growth for the Micro, Small, and Medium Enterprises (MSME) segment, estimating a decline to 15 per cent from 19 per cent in FY24. Additionally, agricultural credit growth is anticipated to be linked to monsoon trends, with a moderation expected following a robust fiscal year in 2024.
