India's loan-taking to grow faster than GDP growth this year: SBI Capital Markets

India's 13-15% projected growth in credit is due to economic growth, formalisation, digitalisation, and premiumisation.

The growth of credit, or loans in India is expected to exceed the growth of nominal gross domestic product (GDP) for the current financial year 2024-25, ANI wrote, quoting a report from SBI Capital Markets.

Credit growth in the Indian banking sector is expected to exceed nominal GDP growth in the current financial year 2024-25, growing at 13-15 per cent (Google/CollegeVested)

What is nominal GDP?

Nominal GDP is the GDP amount which is not adjusted to price fluctuations caused by inflation or deflation.

What is the reason for credit to grow?

This 13-15% projected growth in credit is due to economic growth, formalisation, digitalisation, and premiumisation, according to the report.

Infrastructural spending and MSME credit growth is also expected to boost the credit growth this year.

"Infrastructure projects are increasingly funded by key financial institutions in early stages and capital markets (bonds, InvITs) for operational projects, according to the report.

"Government capex is primarily funded by Budgetary allocations. These factors have limited the growth of bank infrastructure loans to a 5% in recent years. Proposed project loan provisions may extend this period of moderate growth," it said.

Blocks of bad assets (bad loans) have been cleared with asset quality and capital in the pink of health, the report read, stating this would contribute to the growth in credit.

Which types of credit are growing the most?

Industry credit growth was 5%, which is slower than overall bank credit at 10%. NBFC credit growth is faster than both, according to the report.

“While PSBs (public sector banks) continue to lose share to PVBs (private sector banks), the pace has come down to a trickle as the former are now armed with well-capitalized balance sheets, and a war chest of deposits,” the report read.