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Indian banks and Non Banking Finance Companies are well placed to seize the opportunity from the country’s strong economic prospects through lending in various sectors, even though loan growth is expected to moderate by about three percent, according to a report by ICRA.
“The extent of growth of systemic liquidity and deposit in India will continue to remain a key driver for credit growth for banks amid strong demand for credit”, said a report by ICRA, an affiliate of Moody’s. “We expect the banking sector’s performance to remain strong with profitability primarily driven by strong loan growth and a favourable credit environment”
Loan growth is expected to moderate over the next year as banks seek to align their loan growth in line with deposits, as deposits are not growing as fast as loans. Loan growth will reduce to 12% -14%, from 16% last year.
Deposit growth has fallen to 14% in the last fiscal, from a peak of 18% in fiscal 2020, as people seek better returns and invest in the stock market or mutual funds.
Loan growth in NBFCs is also expected to slow down, especially in the non mortgage retail loan segment along with personal loans after regulatory actions. The past two fiscals have seen high growth rates in these segments with increasing assets under management.
The growth rate of NBFCs will moderate to 18% in FY25, from 24% in the last two fiscals as tighter liquidity will keep the cost of funds elevated.
“For India’s financial institutions, leadership in technology adoption as well as their risk management, governance, customers’ experience and balance-sheet buffers will separate winners from losers over the next 2-3 years,” says Amit Pandey, senior analyst at Moody’s, the parent of ICRA.
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