India's banking sector is poised for robust growth in the coming years, according to a recent forecast by rating agency Crisil. The agency projects bank credit growth to reach 11-12% for the fiscal year 2025-26, slightly surpassing the 11% growth recorded in the previous fiscal year.

Accelerated Growth in Second Half

Crisil anticipates an acceleration in credit growth during the second half of the current fiscal year. This uptick is expected to be primarily driven by increased consumer loan demand, fueled by a combination of factors including tax cuts, lower interest rates, and improved liquidity in the market.

Segment-wise Growth Projections

The agency's report provides a detailed breakdown of growth expectations across various lending segments:

Retail credit is expected to lead the growth, with a projected increase to 13.00% from 12.00% in the previous year. This expansion in retail lending is anticipated to be driven by unsecured loans and gold loans.

In contrast, corporate loan growth is forecasted to experience a slight deceleration, dropping to 9.00% from 10.00% in the previous year. This slowdown is attributed to companies exploring cheaper funding alternatives.

Key Growth Drivers

Several factors are expected to contribute to the overall credit growth:

1. Regulatory measures to ease liquidity
2. GST cuts boosting consumer spending
3. Normal monsoons supporting rural incomes
4. Lower inflation potentially leading to softer interest rates

Asset Quality Outlook

Crisil maintains a positive outlook on asset quality, projecting that total Non-Performing Assets (NPAs) will remain below 2.50% even in a worst-case scenario. This compares favorably to the 2.30% NPA level recorded in the previous year.

Potential Stress Areas

While the overall outlook is positive, Crisil highlights potential stress in certain export-oriented MSME sectors:

• Gems and jewellery
• Textiles
• Seafood

These industries may face challenges due to higher US tariffs, which could impact their financial performance and, consequently, their ability to service loans.

Conclusion

The projected growth in bank credit, particularly in the retail and MSME segments, signals a positive trend for India's banking sector. However, financial institutions will need to carefully navigate potential risks, especially in export-oriented sectors, to maintain asset quality while capitalizing on growth opportunities.

In a bid to stimulate retail lending amidst a slowdown in bank credit growth, major Indian banks are launching attractive festive season offers. This move comes as the overall bank credit growth has decelerated to 10% compared to 14% in the previous year.

Banking Giants Launch Festive Campaigns

HDFC Bank, one of India's leading private sector banks, has already kicked off its 'Festive Treats' campaign, coinciding with the celebrations of Onam and Ganesh Chaturthi. Not to be left behind, ICICI Bank is gearing up to introduce its 'Festive Bonanza' offers, while Axis Bank plans to roll out special discounts that align with the GST cuts effective from September 22. Other major players like State Bank of India (SBI) and Bank of Baroda are also joining the festive bandwagon with their own promotional offers.

Slowing Credit Growth Across Sectors

The banking sector is witnessing a broad-based slowdown in credit growth across various segments:

• Personal loans: Growth has moderated to 15% from 17% last year
• Vehicle loans and credit card outstanding: Showing deceleration
• Agriculture and allied activities: Credit growth has significantly dropped to 7% from 17%
• Industry credit growth: Declined to 6% from 8%
• Mortgage growth: Slowed to around 10% year-on-year, down from 18% previously

Retail Loans: A Strategic Focus

Banks are particularly keen on boosting retail lending during the festive season due to several factors:

1. Higher margins: Retail loans typically offer better profit margins for banks
2. Asset expansion: These loans help in expanding banking assets
3. Lower risk: Retail loans are generally considered to have a lower risk profile compared to large corporate loans

Festive Season: A Crucial Period

The festive season is viewed as a critical time for banks to revive credit demand. With consumer sentiment generally high during this period, banks are hoping that attractive offers and discounts will encourage borrowing and spending.

Looking Ahead

As the festive season unfolds, it remains to be seen how effective these promotional campaigns will be in boosting credit growth. The success of these initiatives could provide valuable insights into consumer sentiment and the overall health of the retail lending sector in India.

Banks will be closely monitoring the response to these offers, as it could set the tone for their lending strategies in the coming months. For consumers, this festive season might present an opportune time to avail of loans at potentially favorable terms, provided they carefully consider their financial situation and borrowing capacity.