New Delhi [India], April 8 : Rating agency ICRA expects India's credit growth to expand at 10.8 per cent in the current financial year 2025-26.
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.
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