S&P sees 12-14% credit growth in India despite rural stress risks

Kolkata: S&P has projected a 12-14% financial sector credit growth even as concerns over a likely subdued rural credit growth remain if the irregular monsoon reduces rural earnings.

The global rating company projected a 7% GDP growth for India in FY27 while it expects a moderate tightening in monetary policy.

"Pockets of stress are likely to emerge in unsecured segments, particularly among


self-employed borrowers and micro and small enterprises, with potential
spillovers into commercial vehicle loans and affordable housing," said Nikita Anand, director, financial institutions ratings.

She said that weak monsoons would weigh more on microfinance companies and fincos focusing on rural areas, pressuring credit costs and profitability

About a fourth of India's bank loans come from rural segments and the weather adversity could impact banks' rural business, she said.

Overall, public investment remained steady while private investment momentum improved, concentrated in specific sectors such as data centers and semiconductor. Domestic demand showed resilience despite headwinds from West Asia conflict even as energy and food inflation are eating into household budgets.

The rating company projected a 5.1% inflation for FY27.

"Economic activity is strong, but headwinds may slow momentum," senior economist Vishut Rana said.

Meanwhile the strong capital position of large banks and non-bank lenders is expected to support the credit growth.