6 days ago
India Ratings Raises Credit Growth Forecast, Warns of Margin Pressure
India Ratings thinks banks may lend more money this financial year than it previously expected.
It raised its forecast from 13% growth to 15%.
Recent lending has grown quickly, but much of it is to companies and non-bank finance firms.
These loans generally earn less money than some other types of loans.
Banks are also finding it harder to collect enough deposits to support all their lending.
This can increase funding costs and reduce profits.
The agency expects loan losses to rise somewhat, but it does not currently see a major problem with bad loans.
It says lending growth will probably slow later in FY27.
India Ratings raised its banking-sector credit growth forecast to 15% for the current financial year from 13%.
The agency said the latest 19.3% year-on-year growth is driven mainly by corporate and NBFC loans.
High loan-deposit ratios, weaker net interest margins and rising credit costs are key near-term risks.
Deposit growth has lagged credit growth, pushing the banking system’s loan-deposit ratio to 84.8%.
The agency expects bank profitability to weaken, while reporting no meaningful asset-quality problem at present.
- Who
- India Ratings and Research, led in the briefing by Karan Gupta, assessed Indian banks and non-bank finance companies.
- What
- The agency raised its bank credit-growth forecast to 15% but kept a neutral sector outlook because of margin, funding and credit-cost pressures.
- Where
- India’s banking and non-bank finance sectors.
- When
- The assessment refers to the current financial year and FY27; reported figures include data as of 31 July and the June quarter.
- Why
- Credit growth is strong, but deposit shortages, high loan-deposit ratios, lower-yielding lending and expected higher credit costs could reduce profitability.
Key facts
- Bank credit-growth forecast
- Raised to 15% for the current financial year from 13%.
- Latest credit growth
- 19.3% year on year.
- Deposit growth
- 15.4% as of 31 July.
- Loan-deposit ratio
- 84.8% in the June quarter, compared with 71.7% in FY22.
- FY27 credit costs
- Forecast at 74 basis points, up from 65 basis points in FY26.
- FY27 return on assets
- Projected to decline by 6 basis points to 1.31%.
- Gross non-performing assets
- Below 0.5%, with no meaningful asset-quality problem currently identified.
Quotes
Karan Gupta
Head and director of financial institutions at India Ratings
“…high LDR in the banking system, at about 85%, along with moderated profitability, resulting in muted net interest margins, and an expected year-on-year increase in credit costs, are near-term concerns”
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Sources
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