Bank credit to slowdown to 12% from 16% due to regulations, tighter funds

Update: 2024-10-24 17:31 GMT
ICRA estimated the incremental bank credit growth to slow down to Rs 19-20.5 lakh crore (includes the impact of merger of HDFC and HDFC Bank) in FY2025.

Mumbai: The slew of regulatory measures and tighter funding conditions in the domestic markets could result in a steady slowdown in credit growth, especially in the unsecured retail and microfinance segments, for banks and non-banking finance companies (NBFCs), posing a risk to their asset quality, according to ICRA.

The credit rating agency estimated the incremental bank credit growth to slow down to Rs 19-20.5 lakh crore (includes the impact of merger of HDFC and HDFC Bank) in FY2025, which will translate into a year-on-year (y-o-y) growth of around 12 per cent, compared to Rs 22.3 lakh crore (excludes the impact of merger of HDFC and HDFC Bank) in FY2024 (y-o-y growth of 16.3 per cent).

For the NBFCs (including housing finance companies), the growth in assets under management (AUMs) is expected to slow down sharply to 16-18 per cent in FY2025 from 25 per cent in FY2024.

Anil Gupta, Senior Vice President & Co-Group Head – Financial Sector Ratings, ICRA said: “The regulatory measures to slow down bank credit growth will be crucial for banks to cut their deposit rates, once the rate cut cycle starts."

"This will especially be important for maintaining the margins, as the cut in policy rates expected in H1 CY2025 will exert a downward pressure on lending rates. However, the proposed changes in guidelines for liquidity coverage ratio could mean that the immediate cut in deposit rates may not be very substantial, resulting in delayed transmission,” added Gupta.

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