Bank Credit Growth Expected to Slow Down to 14% This Fiscal Year

Bank credit growth is projected to moderate by approximately 200 basis points (bps) to around 14% this fiscal year, following a strong 16% growth in fiscal 2024, according to rating agency Crisil.

Last year’s robust loan growth was driven by strong economic activity and high retail credit demand. However, this year’s growth will be affected by a high base effect, changes in risk weights, and slightly lower GDP growth, Crisil noted.

“The main factors driving credit demand remain solid. A revival in private corporate capital expenditure (capex), especially in the latter half of fiscal 2025, could boost growth. However, the pace of deposit growth could limit credit growth, even though the gap between the two has narrowed over the past year,” the agency said.

Corporate credit, which makes up 45% of bank credit, is expected to grow steadily at 13%. Retail credit, accounting for 28% of bank credit, is forecasted to grow the fastest at 16%.

Ajit Velonie, Senior Director at Crisil Ratings, said, “Corporate credit growth will be supported by private sector industrial capex, with GDP growth expected to be solid at 6.8%, though lower than 7.6% in fiscal 2024. Industries like steel, cement, and pharmaceuticals will lead the capex recovery. Emerging sectors such as electronics, electric vehicles (EVs), and solar modules will also contribute.”

The expected 16% growth in retail credit is slightly lower than the 17% growth in fiscal 2024. Retail credit will feel the impact of lower growth in unsecured consumer credit as banks adjust their strategies to meet new regulatory requirements and strengthen their underwriting processes.

MSME credit growth is estimated at 15%, down from 19% in fiscal 2024, but will benefit from government initiatives like Atmanirbhar Bharat and the Productivity-Linked Incentive scheme.

Agricultural credit growth will depend on monsoon trends and is expected to moderate after a strong fiscal 2024.