Indian Banking Sector to see moderate credit growth amid profitability pressure: BCG Report

New Delhi [India], June 11 (ANI): The Indian banking and financial services industry (BFSI) is currently experiencing a dynamic period characterised by moderate credit growth expectations alongside evolving profitability pressures, according to a report by Boston Consulting Group (BCG).

The report further adds that, while certain segments, such as mutual funds and insurance, demonstrate robust upward trajectories, the overall credit growth for the year has seen a slowdown, even as deposit growth remains steady.

Additionally, profitability within the banking sector is facing headwinds. Net Interest Margins (NIMs) are projected to be under pressure as repo-linked loans reprice due to rate cuts, compelling banks to lower deposit rates.

However, an elevated Credit-Deposit (CD) ratio intensifies competition for low-cost deposits, further limiting banks' ability to reduce rates and impacting profitability, particularly for mid-sized banks and Small Finance Banks (SFBs). While the banking industry overall reported a 16 per cent year-on-year growth in Net Profit, this masks varied performances.

Furthermore, Public Sector Undertaking (PSU) banks have shown a strong upward trend with a 26 per cent (YoY) PAT growth, outperforming private banks which posted an 8 per cent (YoY) PAT growth. However, SFBs have experienced a sharp decline in profitability due to rising credit costs. Banks have seen an improvement in credit costs, declining from 0.6 per cent to 0.4 per cent, while NBFCs faced an increase from 1.3 per cent to 1.7 per cent.

The report also highlights that, the broader BFSI landscape presents a mixed picture. Mutual fund Assets Under Management (AUM) reached an all-time high, demonstrating an impressive 18 per cent year-on-year growth. The insurance sector also showed positive momentum, with premiums rising by 7 per cent year-on-year in March 2025. This upward trajectory in MF and insurance premiums signifies continued investor interest and market penetration in these segments.

In terms of deposits, growth has remained steady, with overall deposits increasing by 11 per cent year-on-year in FY25, reaching Rs229.3 Lakh Crore. Aggregate deposits grew by 12 per cent year-on-year.

However, CASA (Current Account Savings Account) growth has remained muted, indicating a shift in the composition of deposits. Simultaneously, as highlighted earlier, credit growth has slowed down this year, with total net advances growing by 12 per cent year-on-year, and aggregate credit growing by 13 per cent, year-on-year. (ANI)