S&P Global Ratings forecasts banks to adjust loan growth

S&P Global Ratings: S&P Global Ratings predicts that Indian banks will experience robust credit growth, profitability, and asset quality in the current fiscal year, driven by strong economic expansion. However, they may need to moderate their loan growth due to slower deposit growth, according to the agency's Asia-Pacific 2Q 2024 Banking Update.

Director of SSEA Nikita Anand highlighted that while credit growth has been robust, it is expected to moderate to 14 per cent in FY25 from 16 per cent in FY24, especially if retail deposit growth remains sluggish. Anand emphasised the importance of aligning loan growth with deposit growth to maintain profitability, as a higher reliance on wholesale funding could impact profitability negatively.

Private sector banks have been leading loan growth with approximately 17–18 per cent, while public sector banks have seen growth in the range of 12–14 per cent. Anand noted that Indian banks have the capacity to support loan growth of up to 15–20 percent over three years without requiring additional capital.

Anand cautioned against loan growth outpacing deposit growth, as this could strain margins and profitability. She emphasised the need for loan growth to be in line with deposits, highlighting that credit growth should mirror nominal GDP growth while ensuring deposit growth remains consistent.

In summary, while Indian banks are poised for continued strength in credit growth and asset quality, a prudent approach to aligning loan growth with deposits is essential to sustaining profitability amidst evolving market dynamics.

(with PTI inputs)