Indian Banks' Lending Growth Likely To Moderate In FY25, S&P Says

S&P says if credit and deposit growth rates remain steady, a period of deposit competition looms, squeezing bank margins to 2.9% from 3%
Indian Banks' Lending Growth Likely To Moderate In FY25, S&P Says

S&P Global Ratings expects Indian banks' lending growth to moderate in the next fiscal year ending 31 March 2025.

The system-level credit growth is likely to moderate to 14% in FY25 from about 16% YoY growth in the first three quarters of FY24, S&P said in a statement. Margins are also set to fall, it added.

"If credit and deposit growth rates remain steady, a period of deposit competition looms, squeezing bank margins to 2.9% from 3%,” said S&P Global Ratings credit analyst Deepali Seth-Chhabria. “Private-sector banks are likely to bear the brunt of the situation, as they are already operating at much higher LDRs (loan-to-deposit ratios)."

The rating agency noted that a surge in credit growth has pushed Indian banks' ratio of loans to deposits to a two-decade high and growth beyond this level will either come more slowly or be more expensive.

S&P said the credit demand is strong and the economic backdrop is highly conducive to growth. Asset quality is also improving, buoyed by a confluence of supportive structural and cyclical factors, but all that Indian banks are missing is a boom in deposits, it noted.

The rating agency said the deposit competition could get fiercer than its base case assumptions, if lenders don't pull back on credit growth.

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