Resilient Credit Growth Ahead for Indian Banks and NBFCs in FY27: ICRA
ICRA predicts resilient credit growth for Indian banks and NBFCs in FY27, driven by steady demand and strong balance sheets.
The Indian financial landscape is poised for stability and strength. According to the credit rating agency ICRA Limited, resilient credit growth is expected across Indian banks and non-banking financial companies (NBFCs) for the current financial year. This positive outlook is underpinned by steady retail demand, adequate liquidity, and robust balance sheets across the sector.
Stable Profitability and Margin Outlook
Ashish Modani, Senior Vice President and Group Head of Financial Sector Ratings at ICRA Limited, suggests that banks are likely to maintain stable profitability heading into 2026-27. He noted that the overall cost of funds is benefiting from the surplus liquidity currently available in the system.
Furthermore, yields are expected to benefit from the onset of the rate hike cycle. While there is a possibility that credit costs may rise marginally, Modani emphasized that they are expected to remain benign and significantly lower than historical levels, ensuring that bank profitability remains comfortable.
Decoding the Growth Moderation
There have been concerns regarding a potential slowdown in credit growth during the second half of FY2027. However, ICRA clarifies that this is not a sign of weakening demand. Sachin Sachdeva, Vice President and Co-Group Head at ICRA, explained that the moderation in reported figures is primarily due to a "high base effect" rather than a genuine pullback in credit demand.
Asset Quality and Inflation
Regarding asset quality, ICRA does not anticipate that inflation or higher interest rates will lead to an immediate, broad-based deterioration. This stability is contingent on the healthy flow of credit from banks to NBFCs and subsequently to the end borrowers. However, the agency did note that some pressure in "softer delinquency buckets" remains a possibility.
The Liquidity Challenge and Deposit Chase
Banks have recently benefited from temporary liquidity support via concessional FCNR(B) swaps. Sachin Sachdeva pointed out that while this has helped manage funding requirements, the cushion is temporary.
- Deployment: Most of this liquidity is deployed within a quarter.
- The Shift: As this support diminishes, banks will likely return to aggressively chasing deposits to secure the resources necessary for further credit expansion.
On the monetary front, ICRA's economics team, led by Aditi Nayar, has a baseline projection suggesting a possible 25 bps rate hike in December.
Strategic Shifts in HFCs and the Gold Loan Boom
Housing Finance Companies (HFCs) are evolving their strategies to stay competitive against commercial banks. Deep Inder Singh, Vice President and Co-Group Head at ICRA, highlighted that HFCs are diversifying their portfolios to protect net interest margins.
New Focus Areas for HFCs:
- Loan Against Property (LAP): Increased focus to drive growth.
- Commercial Real Estate: A strategic shift to maintain margins amidst stiff competition.
The Rise of Gold Loans
One of the most striking trends is the evolution of gold loans. Once viewed as a "loan of last resort," gold loans are now becoming a "loan of convenience." Driven by rising gold prices and shifting borrower preferences, ICRA expects a massive 40 per cent growth in gold loan Assets Under Management (AUM) for NBFCs in FY2027.