Indian Banks, NBFCs Key Growth Drivers; Credit to Outpace GDP: Report

A Motilal Oswal report highlights that India's banks and NBFCs are key economic drivers, with credit growth consistently outpacing GDP. Asset quality has improved significantly, though retail credit penetration remains below global standards.

Banks and Non-Banking Financial Services (NBFCs) remain key drivers of India's economic growth with the sectoral credit growth remained consistently higher than GDP growth, a recent report by Motilal Oswal Financial Services said.

By 2024-25, bank credit is projected to rise further, reinforcing expectations that credit growth will continue to outpace GDP growth. However, despite the steady growth, India's retail credit penetration remains far below global standards, the report said.

Dramatic Improvement in Asset Quality

Asset quality of the banking sector has dramatically improved in the recent past leading to a sharp drop in credit cost. The credit-to-GDP ratio, after peaking around the early 2020s, remains elevated, underscoring the banking sector's expanding role in supporting economic activity.

Overall, the trend suggests that India's banking system is likely to remain a key driver of growth, with credit consistently growing faster than the broader economy.

Steady Decline in Non-Performing Assets

From FY19 onwards, a sustained improvement is visible in the banking sector. GNPA declined to 9.3% in FY19 and continued to fall steadily to 8.5% in FY20, 7.5% in FY21 and 5.9% in FY22. The downward trend strengthened further in FY23, with GNPA at 3.9%, and improved to 2.8% in FY24. By FY25, GNPA moderated further to 2.5%.

Further, the NNPA also eased consistently, falling from 3.8% in FY19 to 3% in FY20, 2.4% in FY21, 1.7% in FY22, and 1% in FY23, before declining to 0.6% in FY24 and remaining at that level in FY25.

NBFC Sector Growth Accelerates

As per Motilal Oswal report, the NBFC advances rose to Rs 23 trillion in FY19, Rs 25 trillion in FY20 and Rs 27 trillion in FY21, before increasing to Rs 30 trillion in FY22 and Rs 34 trillion in FY23. The growth accelerated further to Rs 40 trillion in FY24 and reached Rs 43 trillion by September 2024.

Overall, NBFC advances have grown at a compound annual growth rate of about 18%, underscoring their increasing role in India's credit ecosystem, the report said. (ANI)

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