Powered by a broad-based economic recovery and stronger balance sheets at banks, credit is expected to grow by 15% year-on-year in the financial years 2023 and 2024, according to Crisil Ratings.
Although the current fiscal’s credit growth is powered by retail and micro, small, and medium enterprises segments, Crisil expects corporate credit to be a larger contributor in the next fiscal.
Credit growth is expected to remain buoyant, but downside risks include estimates of lower-than-expected GDP growth, a sharp and unanticipated rise in interest rates, high inflationary pressures, and a slowdown in private consumption, according to Crisil.
Over the next two fiscals, Crisil expects bank credit to different segments to grow at the following rates:
The estimates exclude the impact of the merger between Housing Development Finance Corporation Ltd. and HDFC Bank Ltd. The merger is expected to deliver a 200 basis point jump in credit growth, according to Crisil’s statement.
“What will be a key monitorable in this high credit growth environment is whether deposit growth can keep pace… with competition for deposits also set to intensify, some banks may have to resort to higher- cost wholesale deposits, which may impinge on their margins, though profitability for the sector should be still higher than last fiscal,” Subha Sri Narayanan, director at Crisil Ratings, said in the statement.
Private sector banks are expected to witness a credit growth rate of 17% year-on-year over the next two fiscals, markedly higher than public sector banks which are expected to see their credit grow by 12% over the same time period.