Bank loan growth may hit the downtrend in FY25, estimates S&P Global Ratings
By Sneha Sengupta•Published on April 28, 2024 at 11:28 PM IST
2 min read
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According to S&P Global Ratings, Indian banks may be forced to scale down their loan growth because deposits are not expanding at the same rate. However, credit growth, profitability, and asset quality would all remain solid in the current fiscal year, showing strong economic growth.
The high credit growth in the sector is expected to decrease to 14% in FY25 from 16% in FY24 if deposit growth, particularly retail deposit growth, stays muted, according to S&P Global Ratings Director SSEA Nikita Anand in the Asia-Pacific 2Q 2024 Banking Update.
“We expect banks to bring down their loan growth in FY25 and bring it in line with deposit growth. If banks do not do that, they would be paying higher to get wholesale funding, which will impact profitability,” she mentioned during a webinar of S&P Global Ratings.
S&P Global Ratings is an American credit rating company that produces financial studies and evaluations on stocks, bonds.
Anand said Indian banks can support loan growth of as high as 15-20 per cent over three years without need for raising capital. The loan growth is 2-3 percentage points higher than deposit growth of the banking sector.
“For India, we expect credit growth, profitability and asset quality to remain robust reflecting strong economic growth. Loan growth is 1.5 times of nominal GDP growth, while deposit growth is in line with nominal GDP growth.
“Loan growth should come in line with deposits rather than outpacing deposits. If credit growth doesn’t slow, banks will have to fund it from wholesale funding and higher cost of such funding could further strain margins and hurt profitability,” Anand wrapped up.
