Bank credit growth to moderate to 14% in FY25 after robust growth: CRISIL

Higher risk weights, base effect, deposit challenge may weigh on growth

Bank credit growth is expected to moderate to 14 per cent in the current financial year (FY25) after an estimated robust growth of about 16 per cent year-on-year (Y-o-Y) in FY23 and FY24.

The growth in FY25 will be tempered by a high base effect, a revision in risk weights and a somewhat lower pace of expansion in gross domestic product (GDP), according to CRISIL Ratings.

The strong economic activity and retail credit demand drove loan growth in the financial year FY24.

The fundamental drivers of credit demand are broadly intact and a revival in private capital expenditure (capex), especially towards the second half of FY25, can provide tailwinds.

The country's largest lender, State Bank of India, has guided for 14-16 per cent growth in credit in FY25. Another public sector lender, Canara Bank, has pegged growth at 10 per cent.

In a statement, CRISIL said the pace of deposit growth may also keep a check on credit growth, even though the differential between the two has reduced over the past year.

The pace of deposit mobilisation gathered steam in FY24. It grew 13 per cent in FY24 against 10 per cent in FY23.

The gap between deposit growth and credit growth narrowed to 3 per cent in FY24 from almost 6 per cent in FY23.

Within the overall credit mix, the corporate segment, which has 45 per cent share in bank advances, would see steady growth of 13 per cent in FY25.

Retail — with 28 per cent share in bank advances — will show 16 per cent growth.

Ajit Velonie, senior director, CRISIL Ratings, said, “Growth in corporate credit will be supported by private sector industrial capex in FY25. This is underpinned by expectations that GDP growth will remain solid at 6.8 per cent.”

Retail credit will print a tad lower at 16 per cent, compared with 17 per cent in FY24.

This segment will feel the drag of lower growth in unsecured consumer credit as banks realign their strategies following the regulatory stipulation of an additional 25 percentage points risk weight. They are strengthening their underwriting processes to counter a potential rise in delinquencies.

The high base effect — especially after the merger of HDFC Ltd with HDFC Bank in FY24 — will also have a bearing on retail growth.

Nevertheless, the relatively higher yields in unsecured consumer credit and, hence, the ability to absorb the higher capital charge, will limit the decline in retail growth, CRISIL Ratings said.

Growth in micro, small and medium enterprises (MSMEs), having 16 per cent market share in overall credit, is estimated at 15 per cent in FY25. It is off a higher base, having expanded by a robust 19 per cent in FY24.

This segment will be supported by factors like a revival in downstream capex, the role of MSMEs in the central government’s Atmanirbhar Bharat initiative, and benefits accrued from the productivity-linked incentive (PLI) scheme.

Also, with greater formalisation of the sector, including improving digital public infrastructure, the addressable base for banks has been expanding continuously.

Agricultural credit growth will remain linked to monsoon trends but should witness moderation on the back of a strong FY24, the agency said.