Overview of CRISIL’s Credit Growth Projections for FY25

Overview of CRISIL’s Credit Growth Projections for FY25

Sub: Economy

Sec: Monetary Policy

Tags: Credit Growth

CRISIL Ratings has projected that bank credit growth in FY25 will moderate to 14%, down from an estimated 16% in FY24.

This deceleration is attributed to several factors including a high base effect, revisions in risk weights, and a slowdown in GDP growth.

Key Factors Influencing the Slowdown

High Base Effect:

The previous year’s high growth rate of 16% creates a base that makes maintaining similar growth rates challenging.

Revision in Risk Weights:

Changes in risk weights, which affect the amount of capital banks must hold against their assets, can impact lending capacity and, consequently, credit growth.

Slower GDP Growth:

A deceleration in economic growth reduces demand for credit as businesses and consumers scale back on borrowing.

Potential Tailwinds

Revival in Private Corporate Capex:

A revival in capital expenditure by private corporations, particularly in the latter half of the year, could bolster credit growth. This indicates that investment in infrastructure and business expansion could drive credit demand.

Sector-Specific Growth Projections

Corporate Credit:

Corporate credit, which constitutes 45% of bank credit, is expected to grow steadily at 13%. This reflects stable demand from large corporations despite overall economic challenges.

Retail Credit:

The retail segment, making up 28% of bank credit, is projected to grow the fastest at 16%. This suggests strong consumer borrowing, potentially driven by personal loans, mortgages, and credit cards.

Credit to MSMEs:

Growth in credit to Micro, Small, and Medium Enterprises (MSMEs) is expected to slow down due to the high base effect. This indicates that previous high growth rates in this segment are unlikely to be sustained at the same pace.

Deposit Growth Impact

Pace of Deposit Growth:

The rate at which deposits grow can influence credit growth. If deposit growth is slower, it could constrain the ability of banks to extend new credit. However, CRISIL notes that the differential between deposit and credit growth has reduced over the past year, which might mitigate some of the impact.

Conclusion

CRISIL’s projection of a 200 basis points easing in bank credit growth in FY25 reflects the interplay of high base effects, regulatory changes, and economic conditions.

While corporate credit is expected to remain steady, retail credit is poised for robust growth, driven by consumer demand. The moderation in MSME credit growth highlights the challenges of sustaining high growth rates in this segment. Despite these challenges, potential tailwinds such as a revival in private capex could provide support to credit growth in the latter part of the year.