Banks’ credit growth will likely moderate by 200 basis points (bps) in the current financial year, growing by 14% year-on-year (y-o-y), rating agency Crisil said in a note on Tuesday.
“Strong economic activity and retail credit demand drove loan growth last fiscal. This fiscal, growth will be tempered by a high base effect, a revision in risk weights and a somewhat lower gross domestic product (GDP) growth,” it said.
Within the expected overall bank credit growth of 14% in FY25, the largest segment — corporate credit — should see growth remaining steady at 13%, while retail loans, the second-largest segment, are expected to grow the fastest at 16%.
Subha Sri Narayanan, director at Crisil Ratings, said: “Banks have been managing their funding requirement through other avenues, such as dipping into their excess statutory liquidity ratio (SLR) holdings. However, the excess SLR held by banks has declined by over 250 bps on average over the last two fiscals, and the reduced flexibility there makes deposit growth even more critical.”
While there are intermittent signs of some easing in systemic liquidity, sustainability is to be seen and competition for deposits will likely keep deposit rates elevated, the agency said. Accordingly, banks will need to balance their growth aspirations and protect margins, depending on their ability to mobilise cost-effective deposits, it added.
