India’s Credit Growth Set To Outpace Nominal GDP This Fiscal: SBI Capital Markets

Credit growth in the Indian banking sector is expected to exceed nominal GDP growth in the current financial year 2024-25, growing at 13-15 per cent, according to SBI Capital Markets. Nominal gross domestic product (GDP) is growth, without adjustment for inflation.

The growth according to the report would be amplified by long-term drivers such as buoyant economic growth, accompanied by formalisation, digitalisation, and premiumisation. Higher capacity utilization across sectors leading to capex, pick-up in MSME credit, and increased infrastructure and construction activity are expected to boost the industry segment, potentially achieving high single-digit growth in 2024-25, surpassing 2023-24’s performance.

SBI Capital Markets, incorporated in 1986 as a wholly owned subsidiary of the State Bank of India, is one of the oldest investment banks in India. “While PSBs (public sector banks) continue to lose share to PVBs (private sector banks), the pace has come down to a trickle as the former are now armed with well-capitalized balance sheets, and a war chest of deposits,” said the report released by SBI Capital Markets earlier this week.

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Terming banks as the beating heart of the Indian economy, the report said they are seeing excellent blood flow — record high profits and superlative credit growth.
“With the blocks of bad assets cleared, asset quality and capital are in the pink of health. The question arises – will credit growth continue amidst countercyclical operations by RBI, or will there be a shortage of the lifeblood – deposits? Will vitals (asset quality, capital) remain stable, and can the profit pulse race further up?” SBI Capital Markets analysed some of these aspects in the report.

Industry CAGR Growing At 5 per cent

Industry credit has grown at a CAGR (compound annual growth rate) of 5 per cent in the past five fiscals, slower than overall bank credit of CAGR 10 per cent. Interestingly, NBFC credit growth continues to outpace bank credit growth.

The slow credit growth, it said, is as large private corporates are eschewing bank credit – their capex is being funded by copious profits, capital markets attracted by their healthier books, and through financial tie-ups with global capital-rich partners.

“Infrastructure projects are increasingly funded by key financial institutions in early stages and capital markets (bonds, InvITs) for operational projects. Government capex is primarily funded by Budgetary allocations with some MLI assistance. These factors have limited the growth of bank infrastructure loans to a per cent 5 per cent CAGR in recent years. Proposed project loan provisions may extend this period of moderate growth,” it said.

These developments have prompted the regulator to take countercyclical measures and boost risk weights for certain categories of credit within personal loans as well as loans extended to (and by) NBFCs. This could have a minor impact on capital ratios, and growth in these segments tapered down slightly in the second half of 2023-24.

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