ICRA Revises FY25 GDP Growth to 6.5% Following Sharp GST Cuts, Predicts Higher Bank & NBFC Credit Demand.

Rating agency ICRA reversed its earlier FY25 GDP growth downgrade to 6.5%, attributing the recovery to sharp and unexpected GST rate cuts, combined with earlier income-tax relief, which have put Rs 3 lakh crore into households, boosting consumption and credit growth prospects.

      - ICRA’s chief economist Aditi Nayar stated that the swift implementation of GST cuts, alongside income-tax relief, has restored FY25 GDP growth forecast from the downgraded 6% back to 6.5%, reversing the earlier negative outlook.

      - On banks, Anil Gupta, senior vice-president, ICRA, highlighted that higher disposable incomes will drive retail loan demand, maintain asset quality, and possibly stimulate corporate investment if consumption rises further.

      - For NBFCs, AM Karthik, senior vice-president, ICRA, noted that the consumption-led demand boost would reduce risks in unsecured and microfinance portfolios, while supporting sectors like vehicles and housing for a balanced credit growth mix.

Main Point :-   (i) Incremental bank credit is projected to rise to Rs 19-20.5 lakh crore in FY26 (10.4-11.3% growth) from Rs 18 lakh crore in FY25, while NBFC credit, excluding infra-focused entities, is expected to grow 15-17%, compared to 17% in FY25.

      (ii) Though incremental bank credit slowed to Rs 3.9 lakh crore in Apr-Aug FY26 from Rs 5.1 lakh crore a year ago, ICRA expects GST rationalisation and the CRR cut to spur further demand, aided by ample liquidity and easing credit-to-deposit ratios.

(iii) Credit vulnerabilities remain for MSMEs and unsecured personal loans (17% of non-food bank credit of Rs 184 lakh crore) and small NBFCs (34% of Rs 35 lakh crore), with projected credit costs rising by ~13 bps for banks and ~30 bps for NBFCs, particularly in non-housing segments.
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