Credit growth in the banking sector is expected to remain low in the current financial year

Mumbai: Rating agency Crisil has estimated that credit growth in the country's banking sector in the current fiscal year has declined by two percentage points to 14 per cent compared to the previous fiscal year.

The slowdown in economic growth in FY25 compared to FY24 is impacting loan outflows. In addition, the increase in risk weight for unsecured loans by the Reserve Bank has also slowed loan growth. The slowdown in deposit flows to banks may also have an adverse impact on loans.

The fundamentals for credit demand remain stable and increased capital expenditure by private corporates will support credit growth.

Corporate loans, which account for 45 per cent of total bank loans, are expected to grow by 13 per cent in the current fiscal year. The agency has also estimated that retail loan growth, which was 17 per cent in the previous fiscal year, has slowed to 16 per cent.

However, the highest growth is expected in retail loans. The report also said that capital expenditure in corporate loans is expected to increase in the steel, pharma and cement sectors. Agricultural loan growth will depend on the monsoon situation.