Bank credit growth to dip to 13-13.5% this year from 15.9% in FY23: CRISIL

Growth in wholesale credit, which makes up to 60% of overall credit, is likely to slow to 11-11.5% this year from a decadal high of 15% last year

The growth of bank credit in India is expected to dip to 13-13.5 per cent in 2023-24 (FY24) from 15.9 per cent in FY23, ratings agency CRISIL said on Thursday. Next year, in FY25, it is expected to recover marginally to 13.5-14 per cent, it added.

The agency mentioned four reasons for the dip in credit growth. One, a slower gross domestic product (GDP) growth of 6 per cent compared to 7.2 per cent last year. Two, easing inflation and softening commodity prices are expected to bring down the demand for working capital in corporations and micro, small and medium enterprises (MSMEs).

According to CRISIL, the third reason is that bond issuances have been robust in the first half of FY24. This will substitute credit from banks with debt capital markets. Lastly, the second half of the year is likely to see a base effect due to strong growth in that period last year.

In the overall bank credit, growth in wholesale credit, which makes up 60 per cent of overall credit, is likely to slow to 11-11.5 per cent this year from a decadal high of 15 per cent last year. On the other hand, retail credit, which makes up 28 per cent of overall credit, is expected to continue to grow at 19-20 per cent, similar to last year.

Also Read: Current account deficit widens to 1.1% of GDP in June qtr at $9.2 bn

"In FY25, overall credit growth trends should see a turnaround and start inching up on the back of an expected improvement in GDP growth to 6.9 per cent," said Krishnan Sitaraman, senior director and chief ratings officer at CRISIL ratings.

"Within this, wholesale credit growth is likely to see a modest increase to 11.5-12 per cent, while retail should remain the key growth driver, expanding steadily at 19-20 per cent. Agriculture credit growth should remain range-bound at 9-10 per cent."

"Overall, while the demand drivers for credit are expected to sustain a 13-14 per cent growth for banks in the next two years, it will also be important from a funding perspective that deposit growth does not lag too far behind. We expect the differential between credit growth and deposit growth to narrow to 200 basis points (bps) from the 500 bps seen in FY23 as deposit rates continue to inch up," added Subha Sri Narayanan, director at CRISIL ratings.

The growth in corporate credit, which makes up around 45 per cent of bank credit, is likely to pick up from the next quarter, CRISIL added. In MSMEs, growth is expected to be steady.

It added that retail credit growth will remain robust at 19-20 per cent next year, similar to the last two years. Moreover, agriculture credit growth is expected to be range-bound around 9-10 per cent. It, however, remains linked to monsoon performance.