S&P Projects a Deceleration in the Loan Growth of Indian Banks in FY25

The Indian financial sector could have certain difficulties in 2024. The international rating company S&P claims that banks are having financial difficulties. Unexpectedly slow loan approval times might result from this. The organization emphasized that banks are disbursing loans at a quicker rate than they are collecting deposits. People may find it challenging to get loans in the following year as a consequence of processing delays caused by this lack of finances.

According to the rating agency, this fiscal year will likely witness significant increases in credit, profitability, and asset quality for Indian banks. However, since deposits are increasing more slowly, they could need to scale down their lending growth.

In the S&P Global Ratings’ second-quarter banking report for the Asia-Pacific region, Nikita Anand, Director at SSEA, said that if deposit growth—particularly in retail deposits—remains weak this fiscal year, the agency expects a rebound in the region. It is anticipated that strong credit growth would drop from 16 to 14 percent.

Anand pointed out that all banks have seen a decline in the loan-to-deposit ratio, with loan growth now outpacing deposit growth by two to three percent. Nikita Anand said, “We expect banks to decrease their credit expansion this fiscal year to match deposit growth,” during a recent S&P Global Ratings seminar. If this isn’t done, getting big funding may become more expensive, which would reduce revenues.

Banks in the private sector have seen the most rise in loans, with a high of around 17–18%. On the other hand, the growth of loans in public sector banks (PSBs) has mostly been between 12 and 14 percent. This implies that a higher number of loans have been made by private banks. Less deposits, such as Fixed Deposits (FDs), might make it harder for them to disburse loans.

According to banking experts, conventional solutions like banks are losing ground to new investment options that provide higher interest rates. Banks would probably have to raise the interest rates on Fixed Deposits (FDs) in order to attract clients, promote new deposits, and facilitate loan approvals. But adopting this strategy can have an impact on their total earnings.