ICRA Forecasts Moderation in Credit Flow from Domestic Sources in FY2025

ICRA, a leading rating agency, predicts a moderation in incremental credit flow within the Indian economy from domestic sources in the fiscal year (FY) 2025, following the record highs achieved in FY2024.

The agency expects the non-food bank credit (NFBC) to slightly decrease in FY2025 compared to FY2024. However, bond issuances are anticipated to rise further during this period. This trend is attributed to the likelihood of sustained elevated interest rates in developed markets, making the domestic debt capital market an attractive borrowing source for large corporates.

Sachin Sachdeva, Vice President & Sector Head at ICRA, expressed optimism regarding corporate bond issuances in FY2025. He forecasts bond issuance levels to reach Rs. 10.6 trillion, up from Rs. 10.2 trillion in FY2024. Additionally, corporate bond outstanding is projected to grow to Rs. 50.3 trillion by March 2025, representing a year-on-year growth of 9.5%.

In recent years, domestic funding conditions have been more competitive compared to developed markets, leading large corporates to favor domestic sources for funding. Strong demand from retail borrowers and non-bank finance companies (NBFCs) has significantly driven incremental credit flow from banks. NFBC expanded to a record Rs. 22.3 trillion in FY2024, surpassing the growth recorded in FY2023.

Furthermore, corporate bond issuances reached an all-time high of Rs. 10.2 trillion in FY2024, resulting in the stock of corporate bonds outstanding rising to an estimated Rs. 46.0 trillion by March 31, 2024. Commercial papers (CPs) outstanding also increased to Rs. 3.9 trillion during the same period.

Despite regulatory actions affecting certain sectors, ICRA remains positive due to sustained demand for Indian Government Bonds (IGBs) from foreign portfolio flows. This demand is expected to support corporate bond issuances in FY2025, with ICRA estimating an incremental credit expansion of Rs. 24.5 trillion during the fiscal year.