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Bank Credit Growth Likely To Decline To 13-13.5% In 2023: Crisil

Expansion in wholesale credit, constituting 60 per cent of total credit, is expected to moderate to 11-11.5 per cent this year, down from the previous decade's peak of 15 per cent last year.

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Bank credit growth in India is projected to decrease to 13-13.5 per cent during the fiscal year 2023-24 (FY24), down from 15.9 per cent in FY23, as indicated by Crisil. In the financial year 2025, a slight recovery is expected, with a range of 13.5-14 per cent, according to their analysis.

Crisil has identified four key factors contributing to the decline in credit expansion including a slower gross domestic product (GDP) growth of six per cent, compared to the previous year's 7.2 per cent. Secondly, the easing of inflation and the softening of commodity prices are anticipated to reduce the demand for working capital in both corporations and micro, small and medium enterprises (MSMEs). Thirdly, Crisil highlights the robustness of bond issuances in the first half of FY24, which is expected to substitute bank credit with debt capital markets. Lastly, the latter half of the year may experience a base effect due to the substantial growth observed during the same period in the preceding year.

Concerning overall bank credit, the growth of wholesale credit, constituting 60 per cent of total credit, is expected to decelerate to 11-11.5 per cent this year from the previous year's decade-high of 15 per cent. Conversely, retail credit, comprising 28 per cent of total credit, is anticipated to maintain its growth momentum at 19-20 per cent, in line with the previous year.

Krishnan Sitaraman, Senior Director and Chief Ratings Officer at Crisil Ratings, anticipated a positive shift in credit growth trends in FY25, with overall credit growth likely to begin inching up, driven by the expected improvement in GDP growth to 6.9 per cent. Within this context, wholesale credit growth is expected to witness a modest increase to 11.5-12 per cent, while retail credit is poised to remain the primary growth driver, steadily expanding at 19-20 per cent. Agriculture credit growth is expected to maintain a range of 9-10 per cent.

Overall, while demand factors for credit are anticipated to sustain a 13-14 per cent growth rate for banks over the next two years, it is essential from a funding perspective that deposit growth does not significantly lag behind. The expectation is that the differential between credit growth and deposit growth will narrow to 200 basis points (bps) from the 500 bps observed in FY23 as deposit rates continue to rise. This perspective was shared by Subha Sri Narayanan, Director at Crisil Ratings.

Crisil also noted that corporate credit growth, representing approximately 45 per cent of bank credit, is likely to rebound in the upcoming quarter. Growth in the Micro, Small, and Medium Enterprises (MSMEs) sector is expected to remain stable. Furthermore, retail credit growth is predicted to remain robust at 19-20 per cent in the following year, similar to the previous two years. Agriculture credit growth, however, is forecasted to remain within a range of 9-10 per cent, contingent upon monsoon performance.