S&P projects 12-14% credit growth this fiscal, warns weak monsoon may hit rural lending

S&P Global has forecasted a 12-14% increase in credit growth for the financial sector this fiscal year, while cautioning that irregular monsoon rains could hinder rural lending. The agency anticipates a 7% GDP growth for India in FY27 and expects a slight tightening of monetary policy. Nikita Anand, director of financial institutions ratings at S&P, warns that pockets of stress may arise in unsecured segments, particularly among self-employed borrowers and micro and small enterprises, which could affect commercial vehicle loans and affordable housing.

Anand notes that weak monsoons would have a more significant impact on microfinance and financial companies operating in rural areas, leading to higher credit costs and reduced profitability.

Roughly a quarter of India's bank loans originate from rural segments, and weather-related disruptions could strain the rural business of banks. However, public investment remains stable, while private investment momentum has improved, focusing mainly on data centers and semiconductors. Domestic demand remains resilient despite pressures from conflicts in West Asia.

Inflation is expected to hover at 5.1% for FY27, according to Crisil. Economic activity is robust but may face slowdown due to various challenges, as highlighted by senior economist Vishut Rana.