Financial conditions may be less supportive of growth in fiscal 2025: Crisil

Even as financial conditions had been conducive to growth in fiscal 2024, particularly as bank credit growth was in double digits for the second year in a row, conditions may be less growth supportive supportive of in fiscal 2025, according to Crisil.

“The RBI’s move to increase risk weights for non-banks and unsecured consumer lending is expected to temper credit growth. Crisil MI&A sees it at 13.5-14.5 per cent next fiscal compared with an estimated 14.5-15.5 per cent this fiscal. Non-banking credit is expected to see a sharper slowdown of 15-16 per cent next fiscal from 17-18 per cent this fiscal. This would also have an impact on the pace of economic growth next fiscal,” Crisil said in its latest Financial Conditions Index report shared exclusively with businessline.

“However, the markets may continue to benefit from FPIs, given the current strong macroeconomic position and the opportunity created by their inclusion in global bond indices,” it added.

• Also read: S&P Global raises India’s growth forecast to 6.8% for FY25, lower than current fiscal

Financial conditions in India remained favourable in February, as a slimmer budget deficit helped boost investor confidence, foreign investors stepped up buying government securities, and bank credit growth stayed buoyant.

Crisil’s Financial Conditions Index (FCI) summarises the state of financial conditions by collating key parameters across the domestic markets. The gauge stood at 0.6 in February, slightly better than January’s 0.5. A positive reading indicates conditions are easier compared with the average since 2010.

Domestic bond yields declined in February despite rising crude oil prices and hardening US yields. The 10-year G-sec yield declined to an average of 7.08 per cent from 7.18 per cent in the previous month. Yields dropped sharply earlier in the month when the government announced a reduction in fiscal deficit and gross market borrowings in the Interim Budget for next fiscal. Softening inflation and FPI inflows into debt also helped temper yields.

• Also read: Q4 GDP growth expected to ease to 6.3%: DBS Group

Systemic liquidity remained in deficit in February, if slightly less so compared with January. This is reflected in the RBI’s net infusion of ₹1.86 lakh crore (0.8 per cent of net demand and time liabilities, or NDTL) in February, a touch lower than ₹2.07 lakh crore (0.9 per cent of NDTL) in January. A high credit-deposit ratio has kept liquidity in deficit. But a lower deficit in February compared to January was due to an increase in government spending.

The RBI conducted variable repo rate auctions during the month to inject liquidity into the banking system. The weighted average call money rate (WACR) eased in February due to lower liquidity deficit, though it remained above the repo rate of 6.5 per cent. The WACR eased 10 bps on-month averaging 6.66 per cent.

Bank credit growth accelerated for the second consecutive month to 16.5 per cent in February from 16.1 per cent in January. Sectoral data for January shows the increase was driven by agriculture (20.1 per cent vs 19.5 per cent in December), services (20.7 per cent vs 19.6 per cent) and personal loans (18.4 per cent vs 17.7 per cent). Growth credit card dues outstanding moderated compared with the previous month (31.3 per cent vs 32.6 per cent), as did industry credit (7.8 per cent vs 8.1 per cent).

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