Bank credit growth is expected to dip to 13-13.5 per cent in the current financial year, before inching up to 13.5-14 per cent in FY25 compared with 15.9 per cent in FY23, according to CRISIL Ratings.

The moderation of the credit growth in FY24 will be due to the expected decline in GDP growth to 6 per cent from 7.2 per cent, lower working capital requirements due to easing of inflation and some commodity prices, robust bond market issues, and a high-base effect from the second half of FY23.

‘Crucial that deposit growth does not lag too far behind’

Growth in wholesale credit, which accounts for around 60 per cent of credit, is seen slowing to 11-11.5 per cent in FY24 from a decadal high of 15 per cent. Retail credit, which comprises 28 per cent of bank credit, is expected to grow at a similar rate of 19-20 per cent as compared with FY23.

A key monitorable which will determine credit growth will be the extent of pick-up in deposit growth, it said, adding that it is crucial that deposit growth does not lag too far behind.

“We expect the differential between credit growth and deposit growth to narrow to 200 bps from 500 bps in FY23 as deposit rates continue to inch up. Competition for deposits among banks will be par for the course, and we may see banks walking the tightrope between deposit growth and protecting margins depending on their ability to mobilise cost-effective deposits,” said Subha Sri Narayanan, Director, CRISIL Ratings.

FY25 outlook

Credit growth trends should turnaround and start inching up in FY25 on the back of improvement in GDP growth to 6.9 per cent, CRISIL said.

Wholesale credit growth is likely to be at 11.5-12 per cent. Despite slower-than-expected revival in private industrial capex, corporate credit which comprises 45 per cent of bank credit, is seen picking up led by higher capacity utilisation levels and capex announcements.

Demand from NBFCs will also support corporate credit as they continue to see “decent growth tailwinds”. The MSME segment, which accounts for 15 per cent of overall credit, will see steady growth on the flow-through impact of the PLI scheme, formalisation of the sector and improving digital public infrastructure.

Retail credit growth will grow at 19-20 per cent, led by demand for home loans, unsecured loans (both personal loans and credit cards) on the back of digitalisation of financial transactions, shift to organised credit, and increasing borrowing for discretionary spending.

“Higher yields and expectation of credit costs remaining within acceptable levels will also be drivers. Agriculture credit growth is expected to be range-bound at 9-10%. The linkage with monsoon performance remains high in this segment,” the note said.