India Ratings revises down banks’ credit growth forecast for FY25

India Ratings revises down banks’ credit growth forecast for FY25

India Ratings on January 7 has revised down its forecast on the banks’ credit growth for the current financial year.

Banks’ credit growth is now pegged at 13-13.5 percent for the financial year 2024-25 and 2025-26, which was lower compared to 15 percent growth projected for FY25 in February 2024.

“Ind-Ra now expects credit growth of 13%-13.5% for FY25 and FY26, but the mix is likely to change with a continued slowdown in lending to NBFCs and the retail sector. This is likely to be offset by a revival in private capex, benefiting growth of the corporate segment,” the ratings agency said in the FY26 Banking Outlook report.

Similar words have been reiterated in the February report by the ratings agency that the mix is likely to change with a slowdown in lending to NBFCs and retail sector.

Further, the report also said that Indian banks’ profitability is at an inflexion point in FY25 and there could be further moderation in FY26. This is due to expectation of rising slippages and higher credit costs over FY24 levels which was at decadal lows.

“Profitability while being healthy is already at an inflexion point in FY25 and expected to moderate further in FY26 with an expectation of rising slippages and higher credit costs over FY24 levels which was at decadal lows," Karan Gupta, Head and Director Financial Institutions at India Ratings was quoted saying in a release.

The ratings agency has maintained a neutral outlook on the overall banking sector for FY26. The agency believes the banking sector’s near-to-medium term challenges include an elevated loan deposit ratio (LDR), the potential impact of draft norms on liquidity coverage ratio, expected higher provisioning for the infrastructure sector and the introduction of expected credit loss norms.