Bank credit growth to stay healthy, but with some moderation: Crisil

Bank credit growth is expected to moderate 200 basis points (100 basis points is equal to 1 percentage point) to 14 per cent this year after an estimated robust growth of 16 per cent last financial year, according to Crisil Ratings.

Strong economic activity and retail credit demand drove loan growth last year. This year, the growth is expected to be tempered by a high base effect, a revision in risk weights, and a somewhat lower gross domestic product (GDP) growth, asserted Crisil.

However, on the positive side, it notes that the fundamental drivers of credit demand seem to be broadly intact and a revival in private corporate capital expenditure, especially towards the second half of year 2024-25, can provide some tailwinds.

Within the expected overall bank credit growth of 14 per cent in 2024-25, the largest segment, corporate credit, at 45 per cent of bank credit, should see growth remaining steady at 13 per cent, while retail (at 28 per cent of bank credit), the second-largest segment, is expected to grow the fastest at 16 per cent.

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Ajit Velonie, Senior Director, CRISIL Ratings, said, “Growth in corporate credit will be supported by private sector industrial capex in fiscal 2025, underpinned by expectations that GDP growth will remain solid.” Retail credit will likely report a tad lower at 16 per cent, compared with 17 per cent last year, but will remain the fastest-growing segment for banks.

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Explaining rationale, it said the retail segment will feel the drag of lower growth in unsecured consumer credit (at 25 per cent of retail credit) as banks realign their strategies following the regulatory advisory to counter a potential rise in loan delinquencies.

Home loans remain the largest constituent of retail credit and should grow steadily, given increasing preference for home ownership and better affordability, the rating agency said. Agricultural credit growth will remain linked to monsoon trends but should witness a moderation on the back of a strong financial year 2023-24.

The southwest monsoon, as predicted by the weather bureau IMD, is likely to hit Kerala on May 31, a day before the normal date of June 1. The India Meteorological Department said conditions are becoming favourable for the onset of the monsoon. These rains are crucial to the Indian agriculture economy, especially for kharif crops. India has three cropping seasons – summer, kharif and rabi.