The outlook for credit offtake remains positive for FY24, supported by factors such as economic expansion and a steady push for retail credit, which has been supported by digitalisation, according to CARE Ratings.

The credit rating agency estimated credit growth at 13-13.5 per cent for FY24, excluding the impact of the merger of HDFC with HDFC Bank.

The agency expects the personal loan segment to perform well in FY24, compared to the industry and service segments.

Furthermore, as the credit-deposit (CD) ratio remains elevated, growth in the liability franchise would play a significant role in sustaining loan growth.

However, inflation, elevated interest rates, and global uncertainties could potentially impinge on credit growth in India. Given the lingering threat of inflationary risks, the RBI is expected to ensure there is enough liquidity to meet credit demand.

CD ratio at 2-year high

CARE Ratings said the CD ratio has broadly been on an uptrend, hovering above 75 per cent since December 2022. The CD ratio saw an uptick of 80 basis points, compared to the previous fortnight, and stood at 79.1 per cent in the fortnight ending October 20, 2023, reaching a two-year high.

“As the credit-to-deposit ratio remains elevated, growth in the liability franchise would play a significant role in sustaining loan growth. The competition for deposits is likely to intensify even further, resulting in a rise in funding costs in the coming periods, as rates remain elevated and CASA [current account, savings account] share reduces,” said the report by Sanjay Agarwal, Senior Director; Saurabh Bhalerao, Associate Director; and Tejas Poojary, Lead Analyst, CARE Ratings.

They noted that deposits have registered a robust performance post-Covid. However, in recent times, credit growth has been significantly outperforming deposit growth, and this can be mainly attributed to the lower base effect in credit and merger impact.

Fortnightly credit and deposit growth

Credit offtake continued to grow, at 19.7 per cent year-on-year (y-o-y) to reach Rs 154.3 lakh crore for the fortnight ending October 20.

“This surge continues to be primarily driven by the impact of HDFC’s merger with HDFC Bank and growth in personal loans. Meanwhile, if the impact of the merger is excluded, credit grew at a lower rate of 15.1 per cent y-o-y fortnight,” the agency said.

Deposits, too, witnessed growth of 13.4 per cent y-o-y for the fortnight (including the merger impact). Excluding the merger impact, growth stood at 12.6 per cent.

The agency said deposit growth is expected to improve, compared to current trends, in FY24 as banks look to shore up their liability franchise and ensure that deposit growth does not constrain the credit offtake