Domestic credit rating agency India Ratings has revised its FY27 estimate for bank credit growth to 15 per cent from the earlier projection of 13 per cent, but flagged an impact on profitability as lenders set aside money for transitioning to the expected credit loss system of provisioning. The agency said the upward review on the credit costs front is driven by expectations of a higher proportion of lending to corporates towards working capital requirements, especially on the back of benefits on cash reserve ratio (CRR) on the deposits raised from the diaspora.
It noted tighter bond yields will also make bank borrowings more attractive for non-banking finance companies (NBFCs). The revised projection on credit growth is lower than the current 19.3 per cent year-on-year growth as of July 31. Further, it said banks are likely to face some profitability challenges despite the higher credit growth and the proportion of dud assets being at all-time lows.
It stated banks’ credit costs are expected to increase to 0.74 per cent in FY27 from 0.65 per cent in the previous fiscal due to additional provisioning requirements under the Expected Credit Loss (ECL) framework. Ankit Jain, associate director, India Ratings, said the transition to ECL norms is likely to weigh on the banking sector through a one-time impact on the balance sheet and higher steady-state credit costs, driven by increased Stage 1 and Stage 2 provisioning requirements.
