The credit growth is likely to slow down in the next financial year as banks look to go slow on retail loans in response to the Reserve Bank of India’ (RBI) measures aimed at curbing the expansion of retail credit.
The credit growth is expected to decline by 100 basis points (bps) to 15% in FY25. The growth, excluding the merger impact of mortgage lender HDFC with HDFC Bank, is expected to be around 16-16.5% in the current fiscal.
“Credit growth is expected to decline to 15% in the next financial year from 20.5%, which includes merger impact of HDFC with HDFC Bank, in the current fiscal,” said Soumyajit Niyogi, director, core analytical group, India Ratings and Research, speaking at a webinar. “The slowdown is mainly because banks and NBFCs have turned cautious on retail loans after regulatory intervention and communication from the banking regulator.”
Iron and steel, cement, textile, chemical renewable energy, and the sectors linked to the production linked incentive (PLI) scheme will drive the growth in corporate loans, Niyogi said. The deposit growth is also likely to moderate to 12-13% in the next fiscal from 14-15% in the current fiscal, according to India Ratings and Research.
The RBI has taken a string of measures over the past six months to rein in some retail lending by banks and NBFCs. Concerned with a sharp rise in personal loans, the RBI raised the risk weight requirement for banks and NBFCs by 25 basis points in November last year. Speaking at an event November last year, RBI governor Shaktikanta Das cautioned banks and NBFCs to avoid “all forms of exuberance”.
Bankers say unsecured loans will grow, but at a slower rate.
“The quality of unsecured loan book remains strong. We will continue to grow unsecured loans, but the growth will not be as aggressive as it was in the past,” said the head of retail loans of a public sector bank. “The pace of growth in unsecured loans will come down because banks cannot ignore the signals from the central bank.”
Credit offtake grew 20.5% year-on-year to reach Rs 162.1 trillion for the fortnight ending February 23, 2024. The growth included the impact of HDFC’s merger with HDFC Bank. Excluding the impact of the merger, credit grew at 16.5% YoY for the fortnight, according to a Care Edge Ratings report.
“We are expecting around 100-bps decline in credit growth in the next fiscal. Banks are trying to control the growth in retail loans which were a major driver of overall credit growth,” said Madan Sabnavis, chief economist, Bank of Baroda.
According to India Ratings and Research, the banking system liquidity is expected to ease from the next quarter, bringing relief to banks.