Financials Sector Check I Credit Growth - Applying The Brakes: Motilal Oswal

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Motilal Oswal Report

After a healthy growth performance over FY22-24, systemic loan growth is likely to moderate in FY25E, led by continued moderation in unsecured retail and slower corporate credit off-take.

The elevated credit-deposit ratio for the system is further limiting banks’ ability to pursue credit growth. While the gap between deposit and credit growth has narrowed from the peak of 8.8% in November 22 to 3.5% currently, the high incremental loan-to-deposit and continued regulatory watch on both LDR and liquidity coverage ratio will drive further moderation in loan growth.

We have already cut our credit growth estimates for private banks/public sector banks by 210 basis points/112 bp for FY25 and estimate systemic growth to moderate to 12.5% in FY25.

We estimate the differential between credit and deposit growth to narrow down to less than 100bp over the year. We thus project the pace of market share loss for PSBs to decline significantly, as their growth rate remains largely unchanged owing to comfortable LCR and CD ratios.

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