According to CRISIL Ratings, India’s bank credit growth is predicted to slow to 14% in FY25, following strong growth of around 16% in FY23 and FY24. This moderation is attributed to factors such as a high base effect, revised risk weights, and a slightly lower pace of GDP expansion. The previous financial year (FY24) saw loan growth driven by robust economic activity and demand for retail credit.
The underlying factors driving credit demand remain strong, and there is potential for a boost in private corporate capital expenditure (capex) in the latter part of FY25.
CRISIL stated that the pace of deposit growth could impact credit growth, despite the reduced difference between the two. Deposit mobilization accelerated in FY24, growing by 13% compared to 10% in FY23. The gap between deposit and credit growth narrowed to 3.0% in FY24 from nearly 6.0% in FY23. In terms of credit mix, the corporate segment, accounting for 45% of bank advances, is expected to grow steadily at 13% in FY25. The retail segment, with a 28% share, will experience 16% growth.
According to Ajit Velonie, senior director at CRISIL Ratings, corporate credit growth in FY25 will be supported by private sector industrial capex, driven by the expectation of solid GDP growth at 6.8%. Retail credit growth is expected to be slightly lower at 16% compared to 17% in FY24. This is due to lower growth in unsecured consumer credit as banks adjust their strategies following regulatory requirements and strengthen underwriting processes to mitigate potential delinquencies. The high-base effect, including the merger of HDFC Ltd with HDFC Bank in FY24, will also impact retail growth. However, the relatively higher yields in unsecured consumer credit and the ability to absorb the higher capital charge will limit the decline in retail growth, as per CRISIL Ratings.
The MSME segment, which holds a 16% market share in overall credit, is expected to grow by 15% in FY25, following a robust expansion of 19% in FY24. This growth will be supported by factors such as a revival in downstream capex, the role of MSMEs in the government’s Atmanirbhar Bharat initiative, and benefits from the Productivity-Linked Incentive scheme. Additionally, the formalization of the sector and improvements in digital infrastructure have expanded the addressable base for banks. Agricultural credit growth will be influenced by monsoon trends but is expected to moderate after a strong FY24, according to the agency.