Banks in India have seen strong credit growth over the last couple of years and non-performing assets have also fallen significantly. The credit growth is likely to remain strong, albeit at a slightly slower pace, and NPAs too are expected to fall to their lowest in more than a decade, according to credit ratings agency Moody's and its affiliate in India ICRA.
With the NDA government winning the Lok Sabha election, there is likely to be policy continuity.
Private capex, meanwhile, is likely to be measured rather than being exuberant, say officials at Moody's affiliate ICRA.
Between financial years 2024-2027, sectors like steel, automobiles, aviation and cement are expected to clock 7-9 per cent compounded annual growth.
Banks and non-bank finance companies (NBFCs) are well placed to seize opportunities from the country’s strong economic prospects through lending growth in sectors such as infrastructure, energy transition, manufacturing, small businesses and retail, Moody's said.
It expects banks credit to grow at 12-14 per cent over the next 12-15 months, compared with around 16 per cent last year.
The assets under management (AUM) of NBFCs (excluding housing finance companies and NBFC infrastructure finance companies) will also likely grow at a relatively slower but healthy rate of 17-19 per cent in fiscal 2025, compared with about 23-24 per cent in financial years 2023 and 2024.
Deposits continuing to grow at a slower pace than credit growth and the Reserve Bank raising concerns on growth in unsecured loans and bank lending to NBFCs are among the reasons behind the slightly slower credit growth.
Capacity expansion, inorganic growth, refinancing and working capital needs will keep capital requirements high for non-financial corporates, said Moody's.
Despite a moderation in growth, credit is set to increase Rs 19-20.5 lakh crore in the fiscal year ending March 2025, which would be the sector's second-highest increase, forecast ICRA.
At the same time, asset quality improvements are expected to continue.
ICRA expects headline gross NPAs and net NPAs declining to their lowest levels in over a decade at 2.30 per cent and 0.55 per cent, respectively, by 31 March 2025, from 2.81 per cent and 0.64 per cent, respectively, as of 31 March 2024.
"Corporate asset quality continues to remain stable; however certain asset classes in retail unsecured segments are seeing increased stress. Reduced credit flow could further pressure asset quality in these segments, but overall fresh slippages and credit costs will remain benign for banks," said Karthik Srinivasan, ICRA’s Senior Vice President and Group Head.
Over the past decade, the corporate sector has steadily cut debt to 55 per cent of GDP from 72 per cent. According to Moody's Indian corporates have the capacity to incur additional debt to meet funding needs.
India Inc will continue to report stable credit metrics due to stabilising inflationary pressures and a steady interest rate regime, said K. Ravichandran, ICRA's chief ratings officer. The forecast of a normal monsoon should support a nascent recovery in rural markets, he added.
