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Informist, Tuesday, Apr. 1, 2025

 

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--CRISIL Ratings: Expect 50-75 bps reduction in repo rate in FY26 
--CRISIL Ratings: To closely monitor how deposit growth pans out in FY26 
--CRISIL Ratings: Overall credit outlook for FY26 to remain positive 
--CRISIL Ratings: NBFCs' assets under mgmt to pick up FY26, seen above 14% 
--CRISIL Ratings: US tariffs to impact India's smartphone sector the most 
--CRISIL Ratings: US tariffs to largely have a low impact on India 
--CRISIL Ratings: India's GDP to grow 6.5% in FY26 
--CRISIL Ratings:Banks' NIMs, return on assets to decline marginally in FY26 
--CONTEXT: CRISIL Ratings officials in a webinar on Oct-Mar ratings round-up 
--CRISIL Ratings: Banks' credit to grow 12-13?ross most segments in FY26 

 

MUMBAI – Rating agencies are optimistic about the banking sector and expect credit growth of 12-13% with a moderate uptick across most segments in the current financial started Tuesday. However, it remains to be seen how deposit growth pans out in 2025-26, rating agencies said in separate webinars.

 

ICRA said the rating upgrades in the financial sector were mainly due to the improvement in scale and profitability amidst controlled credit costs. It also said that the capital profiles have improved for a few entities supported by capital infusion. Rating agencies expect the net interest margins and return on assets to decline marginally in the current financial year.

On the asset quality front, the concern is how bad the asset quality could get in those financial entities with a higher unsecured book. "Indeed, the extended bout of a benign credit cycle for financial sector entities has shown signs of ending with evidence of an increase in fresh slippage and credit costs associated with unsecured loans. However, ICRA views this as a normalisation of the asset quality cycle, with the overall credit profile of financial sector entities expected to remain steady, supported in part by the recent measures taken by RBI (Reserve Bank of India)," the rating agency said.

 

Microfinance non-bank lenders are likely to witness asset quality pressures, which will hit their profitability in FY26, rating agencies said. ICRA said the hit on their bottom lines will be to a lesser extent as compared to FY25.

 

CRISIL Ratings said they expect the assets under management of non-banking finance companies to grow over 14% in FY26.

 

CareEdge Ratings expects the NBFC and the banking sector to have a stable year in FY26. However, the rating agency expects a slowdown in credit growth for banks to 10.5% from 16% in FY24. Deposit growth is expected to pick up and stabilise around 10.5%, the rating agency said.

 

Despite the trouble in microfinance loans the rating agency expects NBFCs to remain stable with half of the companies under coverage seeing downgrades while the rest were upgraded. "Upgrades were mainly driven by improvement in the parent credit profile, while downgrades were driven by deteriorating asset quality and weak profitability of NBFCs in microfinance and unsecured middle zone sectors," the rating agency said. 

 

US TARIFFS

Despite the threat of reciprocal tariffs, rating agencies believe that India's overall trade with the US will not be significantly impacted, with any potential disruption being mitigated by proactive measures, such as the Indian government's likely imposition of anti-dumping duties.

 

CRISIL Ratings said the smartphone sector will be the most vulnerable to reciprocal tariffs by the US. While overall trade disruptions are expected to be low to moderate, the smartphone industry faces the highest risks due to US tariff impositions, the rating agency said. "Only the smartphone sector is something where we believe the impact could be a bit high and for the other sectors we expect the impact to be low to moderate. For example, if you consider the pharma sector, this is relatively insulated from risks such as dumping and pricing pressures due to the inelastic nature of the demand. India's exports in the sector are also less likely to be replaced in the near term," CRISIL Ratings said.

 

"Given the possibility of reciprocal tariffs being levied by the US on India, Indian exporters will need to navigate trade flow adjustments. Additionally, US tariff actions are likely to exert downward pressure on the INR (rupee) against the USD (dollar), which could partially offset the impact on export revenues in INR terms," ICRA said.

 

ICRA also said that the tepidness in India's merchandise exports is expected to continue in the near term amid the ongoing tariff tussles. However, services export growth is likely to outpace merchandise export growth. The rating agency expects the impact of tariffs to be negative on gems and precious stones and positive on iron and steel. Other sectors such as electrical, textiles, auto parts, and pharmaceuticals are expected to see a neutral impact.

 

CareEdge expects India's GDP to grow by 6.7% in FY26 with the challenges from US tariffs posing a downside to the projection. "The reciprocal tariff will be very critical because amidst all that's happening around us, global uncertainties will have a strong bearing on growth. So while so far we have maintained a growth projection of 6.7% for FY26, there are risks of this going down in case the reciprocal tariff turns out to be more severe than is being anticipated," it said. 

 

CareEdge expects the tariffs to affect India's GDP by $3.1 billion on the downside. 

 

On the monetary policy, ICRA expects the RBI to cut the repo rate by 25 basis points in April, while CRISIL expects RBI to reduce the repo rate by 50 to 75 bps in FY26. This reduction will have a direct impact on loans tied to external benchmark rates, which will adjust quickly. However, loans linked to the marginal cost of funds will experience a more gradual reduction, typically delayed by two to three quarters. Deposit rates, similarly, will adjust more slowly, Crisil Ratings said.  End

 

US$1 = INR 85.47

 

Reported by Sachi Pandey, Kshipra Petkar, and Kabir Sharma

Edited by Saji George Titus

 

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