India`s systemic credit growth improves to 13.8 pc amid macro uncertainty
India’s systemic credit growth stood at 13.8 per cent (as of March 15), supported by liquidity buffers and a consumption-led recovery after GST cuts, a report said on Thursday.
The report from Motilal Oswal Financial Services said banks have room to further expand their credit-to-deposit (CD) ratios as deposit growth remained stable at 10.8 per cent while the CD ratio climbed to 83 per cent with faster credit growth.
"With competition for deposits remaining intense, banks continue to face challenges in mobilizing low-cost deposits. We expect term deposit rates to remain sticky, given the continued pressure on low-cost deposit mobilization," the report predicted.
The brokerage found the residual benefits from the cash reserve ratio cut and the Reserve Bank of India’s support for the LCR-NSFR framework supporting expansion in CD ratios, with public sector banks likely to benefit more.
The report projected systemic credit growth to sustain at around 13.5 per cent YoY in FY27E and a healthy deposit growth of 11.5 per cent.
Net interest margins are expected to remain range-bound, with mid-size banks better placed to report margin expansion.
"The repo rate cut of 25 bps in December 25 is expected to be fully reflected in lending yield transmission in Q4. Consequently, funding costs remain elevated, and most banks have not reduced their TD/SA rates after the recent rate cut," it said.
Some large private banks may see flat margins in Q4 results. Asset quality was found to be broadly stable, though the report warned that the ongoing conflict in the Middle East has introduced cash flow and input cost-related risk for MSMEs, which could lead to some stress in this segment.
Regarding asset quality in private banks, the report flagged that areas such as business loans and CVs warrant close monitoring amid the Middle East conflict, although near-term impact appears limited.
