Mumbai: Bank loan growth is expected to slow down this year to around 14 per cent from 16 per cent in fiscal 2024 due to a high base effect, a revision in risk weights and a somewhat lower gross domestic product (GDP) growth according to a report by Crisil Ratings.
Strong economic activity and retail credit demand drove loan growth last fiscal. The fundamental drivers of credit demand are broadly intact and a revival in private corporate capital expenditure (capex), especially towards the second half of fiscal 2025, can provide a tailwind.
On the other hand, the pace of deposit growth can keep a check on credit growth despite the gap between the two halving to 300 basis points from 600 basis points in fiscal 2023. Within the expected overall bank credit growth of 14 per cent in fiscal 2025, the largest segment, corporate credit (45 per cent of bank credit) should see growth remaining steady at around 13 per cent while retail (28 per cent of bank credit), the second-largest segment, is expected to grow the fastest at around 16 per cent.
According to the report, steel, cement and pharmaceuticals will lead the capex recovery. Emerging sectors such as electronics and semi-conductors, electric vehicles (EVs) and solar modules will also contribute to capex, especially over the medium term. The pick-up in capex should offset the impact of lower growth in bank funding to non-banking financial companies (NBFCs) – a key growth driver within corporate credit earlier – on account of the 25 percentage points higher risk weight on lending to higher-rated NBFCs.
Retail will feel the drag of lower growth in unsecured consumer credit (25 per cent of total retail credit loans) as banks realign their strategies following the regulatory stipulation of an additional 25 percentage points risk weight and strengthen their underwriting processes to counter a potential rise in delinquencies.
