Regulatory easing to support India's credit growth expansion at 10.8% in FY26: ICRA

ANI April 8, 2025 183 views

India's credit growth is expected to expand at 10.8% in the upcoming financial year, according to rating agency ICRA. The projection comes amidst supportive regulatory measures and RBI's strategic liquidity interventions. Despite positive indicators, challenges remain in deposit mobilization and maintaining low-cost fund sources. The banking sector anticipates cautious but steady credit expansion, balancing growth with potential market constraints.

"The pro-growth regulatory stance has revived the lenders' appetite for credit growth" - Sachin Sachdeva, ICRA Vice President
New Delhi, April 8: Rating agency ICRA expects India's credit growth to expand at 10.8 per cent in the current financial year 2025-26.

Key Points

1

Regulatory relaxations support banking sector credit expansion

2

RBI's liquidity measures to aid financial transmission

3

Deposit mobilization challenges persist

4

Incremental credit estimated at Rs. 19.0-20.5 trillion

The repo rate cut, deferment of proposed changes in the liquidity coverage ratio (LCR) framework and additional provisions on infra projects, along with the roll-back of increased risk weights on lending to unsecured consumer credit and non-banking financial companies (NBFCs) are some of the enabling, according to ICRA.

Besides, the durable liquidity infusion by the Reserve Bank of India (RBI) through open market operations (OMO) by way of purchases of government bonds and forex swaps with banks, would aid the liquidity and faster transmission of the ongoing cut in policy rates.

However, the persisting challenges in deposit mobilisation, high credit-deposit (CD) ratio and rising stress in the unsecured retail and small business loans would remain a drag on credit growth. Accordingly, ICRA asserted that the pace of credit expansion is expected to trail the recent highs seen in 2023-24.

Sachin Sachdeva, Vice President and Sector Head, of ICRA said: "The pro-growth regulatory stance has revived the lenders' appetite for credit growth in Q4 FY2025 after a brief period of slow incremental credit growth in the initial period of FY2025. Accordingly, ICRA estimates the incremental credit expansion to be around Rs. 19.0-20.5 trillion, clocking a growth rate of 10.8 per cent in FY2026 compared to credit expansion of Rs. 18.0 trillion or a 10.9 per cent growth rate in FY2025."

According to ICRA, one of the key challenges, which the banking sector has been facing in the last few years is raising deposits at competitive pricing, especially the retail deposits.

The increasing competition from other investment avenues and the investors' preference for term deposits have led to a reduction in the share of low-cost current and savings account (CASA) balances, impacting the banks' cost of funds.

ICRA believes that the challenges are likely to persist in the near term, which is likely to delay the transmission of rate cuts by the RBI to banks' cost of funds.

Reader Comments

P
Priya K.
This is great news for the economy! More credit availability means businesses can expand and create jobs. The RBI's policy changes seem to be working well 👏
R
Rahul S.
While the growth projection looks positive, I'm concerned about the rising stress in unsecured loans mentioned here. Banks need to be careful about their lending practices.
A
Anjali M.
As someone in the SME sector, easier credit access would be a game-changer! Hope these policy changes actually translate to faster loan approvals at ground level 🤞
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Sanjay P.
The deposit mobilization challenge is real. With FD rates dropping, where should middle-class savers park their money? RBI needs to think about both borrowers AND savers.
N
Neha T.
Interesting analysis! The 10.8% growth projection seems optimistic but achievable. Infrastructure focus is good, but hope they monitor retail lending risks carefully.
V
Vikram J.
The article mentions OMO purchases - does this mean we'll see bond yields falling further? Might be good time to lock in rates for home loans 🏠

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Tags:
India Credit Growth ICRA Banking Sector RBI Monetary Policy Financial Regulations
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