Outlook on Indian Bank Credit Growth: Insights from Crisil

In a recent analysis, Crisil, a leading research and ratings agency, has provided a comprehensive overview of the projected trends in India’s bank credit growth for the fiscal year 2023-24 (FY24). Several factors have been identified that contribute to the anticipated decline in credit expansion. Here’s a breakdown of their insights and predictions:

Factors Contributing to Decline in Credit Expansion:

1. Slower Economic Growth:

• Previous Year’s GDP Growth: 7.2%
• Predicted Current Year’s GDP Growth: 6%
• The slower economic growth rate is a key factor affecting credit expansion.

2. Easing Inflation and Softening Commodity Prices:

• Impact on Working Capital Demand: Reduced demand, particularly in corporations and MSMEs.
• Lower inflation and commodity prices are expected to alleviate the need for extensive working capital.

3. Robust Bond Issuances:

• First Half of FY24: Witnessed strong bond issuances.
• Impact: Substitution of bank credit with debt capital markets, impacting credit growth.

4. Base Effect in Later Half of the Year:

• Comparison with Previous Year: Anticipated base effect due to substantial growth observed in the same period of the preceding year.

Segment-Wise Credit Growth Predictions:

1. Wholesale Credit:

• Previous Year’s Growth: 15%
• Predicted Current Year’s Growth: 11-11.5%
• Wholesale credit, constituting 60% of total credit, is expected to decelerate significantly.

2. Retail Credit:

• Previous Year’s Growth: 19-20%
• Predicted Current Year’s Growth: Maintaining momentum.
• Retail credit, constituting 28% of total credit, is expected to sustain its growth at a steady pace.

3. Agriculture Credit:

• Predicted Growth Range: 9-10%
• Agriculture credit growth is expected to remain stable, contingent upon favorable monsoon performance.

Future Projections and Optimism for FY25:

• Expected GDP Growth in FY25: 6.9%
• Credit Growth Trends: Anticipated positive shift in credit growth trends in FY25.
• Wholesale Credit Growth (FY25): Expected modest increase to 11.5-12%.
• Retail Credit Growth (FY25): Likely to remain the primary growth driver at 19-20%.

Funding Perspective and Deposit Growth:

• Focus: Crucial for deposit growth not to lag significantly behind credit growth.
• Expected Narrowing of Differential: Anticipated reduction to 200 basis points from the 500 bps observed in FY23. This is due to rising deposit rates.

Sectoral Insights:

• Corporate Credit Growth: Expected to rebound, representing approximately 45% of bank credit.
• MSME Sector: Predicted stable growth.
• Retail Credit: Expected to remain robust at 19-20%, consistent with the previous years.

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