ICRA Revises Banking Credit Growth Amid Shifting Financial Landscape

Credit rating agency ICRA has lowered its banking credit growth forecast for FY2025 and FY2026, emphasizing a focus on improving credit-to-deposit ratios and managing unsecured exposures. Despite potential challenges in deposit mobilization and asset quality, capital ratios remain strong, with manageable credit costs and healthy return indicators.

ICRA, a leading credit rating agency, has adjusted its banking credit growth predictions for the fiscal years 2025 and 2026. The firm now projects a growth range of 10.5-11.0 percent for FY2025, reduced from an earlier estimate of 11.6-12.5 percent, citing a strategic shift by banks towards enhancing credit-to-deposit ratios and minimizing exposure to unsecured retail and NBFCs.

The outlook for FY2026 suggests a further deceleration in credit growth, expected to hover between 9.7-10.3 percent. This forecast is influenced by existing high credit-to-deposit ratios and impending modifications to the liquidity coverage ratio framework. According to Sachin Sachdeva, Vice President and Sector Head - Financial Sector Ratings at ICRA, sustained high interest rates could compress banking margins, especially for high-yielding advances.

Despite these challenges, return indicators remain promising, with a stable return on assets predicted. Banks' financial health appears robust with sound capital ratios and no major capital requirements anticipated for FY2026. Challenges persist in raising deposits, complemented by a rise in bond issuances expected to hit Rs 1.3 trillion for FY2025. While the retail sector faces mounting stress and fresh NPAs might increase, credit costs are estimated to remain mild, supported by high provision coverage ratios and manageable asset quality. (ANI)

(With inputs from agencies.)