Bank credit growth to dip this fiscal to 13-13.5%, inch up in the next

Mumbai, September 28, 2023: After clocking a robust 15.9% last fiscal on broad-based economic recovery, stronger, cleaner balance sheets and the lower base of the preceding two fiscals, bank credit growth is likely to moderate to 13-13.5%1 this fiscal2 and improve a tad to 13.5-14% in fiscal 2025 (see chart 1 in annexure) as economic growth picks up.

A key monitorable which will determine credit growth going forward is the extent to which deposit growth picks up for banks.

The moderation this fiscal will be because of four key reasons.

One, an expected decline in gross domestic product (GDP) growth this fiscal to 6% on-year from 7.2% last fiscal, which will impact overall credit growth.

Two, easing of inflation with some softening in commodity prices. A significant part of growth in wholesale credit (comprising corporates and micro, small and medium enterprises, or MSMEs) last fiscal was driven by higher working capital demand in a high-inflation environment. Going forward, inflation levels are expected to be lower than that seen last fiscal.

Third, bond market issuances have been robust in the first half of this fiscal with the change in interest rate environment. Consequently, bank credit’s substitution of debt capital markets, which also supported wholesale credit growth last year, especially in the first half, is not being seen to the same extent this year.

Fourth, given the strong growth in fiscal 2023, especially in the second half, the high-base effect will also be a factor.

Within overall bank credit, growth in wholesale credit (~60% of overall credit) is likely to slow to 11-11.5% this fiscal from a decadal high of 15%. On the other hand, retail credit (~28% of overall credit), is expected to continue to grow at a healthy clip of 19-20%, similar to last fiscal (see chart 2 in annexure).

Says Krishnan Sitaraman, Senior Director and Chief Ratings Officer, CRISIL Ratings, “In fiscal 2025, overall credit growth trends should see a turnaround and start inching up on the back of an expected improvement in GDP growth to 6.9%. Within this, wholesale credit growth is likely to see a modest increase to 11.5-12%, while retail should remain the key growth driver, expanding steadily at 19-20%. Agriculture credit growth should remain range-bound at 9-10%.”