Even as credit demand remains healthy, banks’ ability to mobilise deposits will largely decide the pace of credit growth in the current fiscal, Icra group head of financial sector ratings and senior vice president Karthik Srinivasan told FE in an interaction.
“Deposits may grow in the vicinity of 10% and advances may rise 11.5%-12.5% in FY25, lower than last year. While credit demand and opportunity exist, the incremental credit-deposit ratio of nearly 100% effectively means that deposit mobilisation will be key for credit growth in the Indian market,” he said.
The Reserve Bank of India (RBI)’s November 2023 move to hike risk weights on unsecured bank loans to non-banking finance companies (NBFCs) has resulted in up to 15-bps jump in shadow lenders’ borrowing costs, he said. Some lower-rated NBFCs may have seen even a higher rise than 15 bps in interest cost, Srinivasan added.
“NBFCs possibly availed of pre-sanctioned credit lines from banks in the past, and hence the growth slowdown is not visible on their balance sheet in Q4FY24, but sequentially over the last three-four months, the slowdown in bank funding is visible,” he said.
With slowdown in bank funding, overall securitisation transactions value may surpass Rs 2 trillion in FY25, compared with Rs 1.8 trillion in FY24. This segment, Srinivasan said, is witnessing increased participation, newer investors and new transactions. Securitisation also provides opportunity for NBFCs to diversify liabilities, he added.
Following the hike in risk weights, NBFCs have also slowed down loan growth in sectors that the RBI is not comfortable with, namely unsecured and personal loans. NBFCs, which focus on secured loans, however, continue to grow well and receive more bank funds as some of these loans are classified as priority sector lending.
Srinivasan said recent actions by the RBI against large NBFCs like ECL Finance, IIFL Finance, JM Finance might have been taken to prune higher growth in select segments and due to certain unethical business and market practices. “We have put two NBFC groups (Edelweiss and IIFL Finance) under ratings watch with negative implications. We are awaiting more clarity on outcome of audit and measures that these entities are taking,” he said.
Lastly, the RBI’s draft project finance guidelines, if implemented in its entirety, will likely lead to a slowdown in infrastructure lending market or appetite for such loans, according to Srinivasan.
