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.
- 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.