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

Credit ratings agency S&P Global has projected 12-14% growth in financial sector lending this fiscal despite concerns that credit growth in rural areas may slow if irregular monsoon rains reduce rural incomes.

The ratings agency has also projected 7% GDP growth for India in FY27 and said 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 weak monsoons would weigh more on microfinance and financial companies focusing on rural areas, pressuring credit costs and profitability.

According to Anand, about a fourth of India’s bank loans come from rural segments, and weather anomalies could impact banks’ rural business.

She said overall public investment remains steady while private investment momentum has improved, concentrated in specific sectors such as data centres and semiconductors. Domestic demand has shown resilience despite headwinds from the West Asia conflict, even as energy and food inflation are eating into household budgets.

Crisil has projected 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 credit growth.