Credit growth is seen at 13-13.5% year-on-year(y-o-y) in 2023-24(April-March), lower than nearly 16% y-o-y in 2022-23, CRISIL Ratings said in a report on Thursday. The growth numbers do not account for the merged entity of Housing Development Finance Corporation and HDFC Bank.
However, the rating agency expects the credit growth to improve to 13.5-14% y-o-y in 2024-25 as the economic growth picks up.
While credit growth had hit 16% y-o-y in 2022-23 on the basis of the broad-based economic recovery, the moderation in credit in 2023-24 can be attributed to an expected decline in gross domestic product (GDP) growth in 2023-24, which will impact overall credit growth.
A significant part of growth in wholesale credit in 2022-23 was driven by higher working capital demand in a high-inflation environment. The easing of inflation in 2023-24 will have a bearing on the demand for working capital from corporates and hence, impact overall loan growth.
With the rise in interest rates, corporates have been tapping the bond market for their financing requirements.
Bank credit’s substitution of debt capital markets, which also supported wholesale credit growth in 2022-23, is unlikely to play out to the same extent this year, the credit rating agency said.
A higher base in the second half of the previous financial year is also expected to reflect in credit growth numbers in the current financial year.
“In fiscal 2025, overall credit growth trends should see a turnaround and start inching up on the back of an expected improvement in GDP growth to 6.9%,” says Krishnan Sitaraman, Senior Director and Chief Ratings Officer, CRISIL Ratings.
Overall loan growth in 2024-25 is expected to be lifted by higher capacity utilisation levels and capital expenditure announcements. On the services side, demand from non-banks should continue to support corporate credit growth as they are themselves seeing decent growth tailwinds, the report said.
Loans to micro, small and medium-sized enterprises (MSME) is expected to be steady in 2024-25 given MSMEs’ role in the government’s Atmanirbhar Bharat initiative and the flow-through impact of the productivity-linked incentive scheme.
“.., with steady push for formalisation of the sector, including improving digital public infrastructure, the addressable base for banks should increase over the medium term,” the report said.
Retail credit growth should grow at 19-20% y-o-y in the next financial year aided by a strong demand for home loans and unsecured loans. Higher yields and expectation of credit costs remaining within acceptable levels will also be drivers, the report said.
“We expect the differential between credit growth and deposit growth to narrow to ~200 bps from the ~500 bps seen in fiscal 2023 (see chart 3 in annexure) as deposit rates continue to inch up,” says Subha Sri Narayanan, Director, CRISIL Ratings.
“Competition for deposits among banks will be par for the course, and we may see banks walking the tightrope between deposit growth and protecting margins depending on their ability to mobilise cost-effective deposits,” she added.