Indian Banking Sector to Grow Faster Than GDP in 2024-25, Says SBI Capital Markets

New Delhi [India], July 7: Credit growth in the Indian banking sector is expected to exceed nominal GDP growth in the financial year 2024-25, growing at 13-15%, according to SBI Capital Markets. Nominal GDP is growth without adjustment for inflation.

The growth will be driven by long-term factors such as economic expansion, digitalization, and increased infrastructure activity. Higher capacity utilization across sectors, a rise in MSME credit, and more infrastructure and construction projects are expected to boost the industry segment, potentially achieving high single-digit growth in 2024-25, surpassing 2023-24’s performance.

SBI Capital Markets, a subsidiary of the State Bank of India, noted that public sector banks are losing market share to private sector banks at a slower pace due to better-capitalized balance sheets and more deposits. The report described banks as the ‘beating heart’ of the Indian economy, experiencing record profits and strong credit growth.

With bad assets cleared, asset quality and capital are in good health. However, questions remain about whether credit growth will continue amidst countercyclical measures by the RBI and potential deposit shortages. Industry credit has grown at a 5% CAGR over the past five years, slower than the overall bank credit growth of 10% CAGR. Non-banking financial companies (NBFCs) continue to outpace bank credit growth.

Large private corporates are avoiding bank credit, funding their capex through profits, capital markets, and global partners. Infrastructure projects are increasingly funded by financial institutions and capital markets, limiting bank infrastructure loans to a 5% CAGR in recent years. Proposed project loan provisions may extend this period of moderate growth.

The regulator has taken countercyclical measures to boost risk weights for certain credit categories within personal loans and NBFC loans, which may slightly impact capital ratios and growth in these segments in the second half of 2023-24.