Banks’ Credit Growth Outlook for FY25: CRISIL Analysis

In its latest report, CRISIL Ratings predicts a slowdown in bank credit growth for fiscal year 2025 to 14%, marking a decline of 200 basis points from the estimated 16% growth in FY24. This moderation is attributed to various factors including a high base effect, revision in risk weights, and a slightly slower pace of GDP growth.

Key Factors Impacting Credit Growth

The anticipated deceleration in credit expansion is primarily influenced by:

1. High Base Effect and Revised Risk Weights: The momentum from strong economic activity and retail credit demand seen in the previous fiscal year is expected to taper off due to the high base effect and adjustments in risk weights.
2. Slower GDP Growth: The pace of credit growth will be tempered by a somewhat lower GDP growth projection for FY25.

Segment-wise Analysis

• Corporate Credit: Expected to maintain steady growth at 13%, driven by private sector industrial capex, particularly in sectors like steel, cement, and pharmaceuticals.
• Retail Credit: Anticipated to be the fastest-growing segment at 16%, supported by sustained consumer demand.
• MSME Credit: Likely to witness a slowdown in growth due to a high base effect.

Factors Influencing Corporate Credit Growth

• Capex Recovery: Private sector investments in key industries, alongside emerging sectors like electronics, EVs, and solar modules, are expected to bolster corporate credit growth despite challenges in funding to NBFCs.

Challenges and Strategies for Banks

• Deposits Growth Dynamics: Banks will face the challenge of managing their funding requirements amidst a decline in excess SLR holdings. The competition for deposits may keep deposit rates elevated, necessitating a balanced approach to growth and margin protection.