Icra revises down banking biz outlook

However, challenges on deposit mobilisation will continue in FY25, and banks will have to hike deposit rates to attract the funds, the agency said, adding that the credit deposit ratio, which has reportedly come under the regulatory gaze lately, will continue to be elevated at over 80%

Mumbai: Domestic rating agency Icra on Wednesday revised downwards its outlook for the banking sector to ‘stable’ from ‘positive’ on expectations of a moderation in credit growth and profitability. The agency said the credit growth will moderate to 11.6-12.5 per cent in FY25 from 16.3 per cent (excluding the impact of the HDFC twins merger) in FY24, while the lower net interest income margins on higher deposit rate payouts will lead to a dip in profits. On the asset quality front, it expects a further moderation in the gross non-performing assets ratio for the banking system at 2.2 per cent by March 2025 from 3 per cent likely in March 2024, its vice president Sachin Sachdeva told reporters.

This will be the lowest level since September 2011, Sachdeva added. Unsecured retail advances and loans to non-bank finance companies will slow down in FY25, leading to a dip in the overall non-food credit growth in the system, the agency said. The RBI’s curbs on unsecured lending by way of increasing the risk weights in November have already led to a reduction in the incremental disbursements of such loans to over 23 per cent from 29.4 per cent earlier, it pointed out.

However, challenges on deposit mobilisation will continue in FY25, and banks will have to hike deposit rates to attract the funds, the agency said, adding that the credit deposit ratio, which has reportedly come under the regulatory gaze lately, will continue to be elevated at over 80 per cent. The agency said it expects a “convergence” between credit and deposit growth in FY25, which will be helpful for the system, given the four percentage point gap that exists at present.