Domestic rating agency Crisil on Tuesday said the banking system's credit growth will drop by 2 percentage points to 14 per cent in financial year 2024-25.
The slowdown will be due to lower GDP growth at 6.8 per cent in FY25, as against 7.6 per cent in FY24, RBI measures like higher risk weights on unsecured loans and also a high base, the agency said.
Slower deposit accretion can keep a check on credit growth, the agency said, admitting that the differential between the deposit and credit growth has reduced over the past year.
It said financial year 2024-25 witnessed a 16 per cent growth in bank credit, if one were to exclude the impact of the HDFC merger, and attributed the same to strong economic activity and higher retail demand.
"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," the agency said.
It was quick to add that the fundamental drivers of credit demand are broadly intact and a revival in private corporate capital expenditure (capex), especially towards the second half of fiscal 2025, can provide tailwinds as well.
The corporate segment, which accounts for 45 per cent of the overall loans, is estimated to maintain the growth at 13 per cent in FY25, it said, adding retail growth will slow down to 16 per cent from 17 per cent in FY24.
Retail will remain the fastest-growing segment for banks, but will feel the drag of lower growth in unsecured consumer credit (25 per cent of retail credit) as banks realign their strategies following the regulatory stipulation of additional 25 percentage points risk weight and strengthen their underwriting processes to counter a potential rise in delinquencies, the agency said.
The relatively higher yields in unsecured consumer credit and, hence, the ability to absorb the higher capital charge, will limit the decline in retail growth, it added.
On the corporate front, steel, cement and pharmaceuticals will lead the capex recovery, its senior director Ajit Velonie said, adding that emerging sectors such as electronics and semiconductors, electric vehicles (EVs) and solar modules will also contribute to capex, especially over the medium-term.
Growth in the Micro, Small and Medium Enterprises (MSME) segment (16 per cent of overall credit) is estimated to drop to 15 per cent from 19 per cent in FY24, it said.
Agricultural credit growth will remain linked to monsoon trends but should witness a moderation on the back of a strong fiscal 2024, it said.
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