Credit Growth To Decline To 12-13% In FY25 From 16.5% In Early December 2023: Icra
The growth of bank credit in India is anticipated to slow down to 12-13 per cent in the upcoming financial year (FY25) due to tight liquidity conditions, contrasting the 16.5 per cent year-on-year in early December 2023, as per Icra.
Aashay Choksey, vice president at ICRA, highlighted a robust increase in credit expansion this fiscal year, reaching Rs 15.5 trillion by 1 December 2023, compared to Rs 18.2 trillion in FY2023. However, forecasts suggest a decline in credit growth post-FY24 due to the potential dampening impact of tight liquidity.
Additionally, factors such as reduced credit demand in agriculture, subdued export demand, and recent risk-weight adjustments in unsecured consumer lending and NBFC segments are anticipated to collectively influence credit traction negatively.
Despite these projections, the banking sector maintains a positive outlook, supported by healthy asset quality levels. Both corporate and retail portfolios demonstrate strong performance in terms of delinquencies, translating to limited net Non-Performing Assets (NPAs).
Furthermore, credit growth is expected to hover around 12 to 13 per cent in FY2025, primarily driven by robust demand in the services and retail segments.
However, these factors might counterbalance due to the ongoing upward repricing of the deposit base in the latter half of FY2024, causing a squeeze in interest margins. While this repricing might largely conclude by FY2024, the anticipation of a rate cut starting August 2024 might further affect lending yields, continuing the pressure on interest margins throughout FY2025.
The agency anticipates operating profits for banks to sustain steady growth due to loan expansion. Nevertheless, a slight moderation in operating profitability levels is expected, stabilising at 1.8-2.0 per cent in FY24-FY25 from 2.2 per cent in FY2023.
