Credit growth picking up; banks better placed than NBFCs, says JM Financial's Ajit Kumar

Ajit Kumar, Lead BFSI Research Analyst at JM Financial Institutional Securities, said credit growth in India is showing a clear improvement and could strengthen further by the end of fiscal year 2025-26 (FY26). Speaking at the JM Financial India Xchange 2025 conference, he said credit growth has risen to “around 11–11.5%,” up from about 10% just a few weeks ago. By 2025-26-end, he expects growth to reach “12.5 to 13%.”

Kumar said the banking sector remains his preferred way to play the credit upcycle. “We are more constructive on banks versus non-banking financial companies (NBFCs),” he said, though he added that they continue to have select picks in both segments. He noted that banks delivered a stronger-than-expected second quarter, with earnings staying flat despite earlier expectations of a decline. Margin compression was also lower than anticipated because of “better balance sheet management” and disciplined deposit pricing.

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He said all three drivers—credit growth, margin performance and asset quality—supported quarter two results. With funding costs expected to ease, he anticipates a gradual margin recovery. “We expect profit after tax (PAT) growth to improve further in quarter three and quarter four,” he added.

On the public sector undertakings (PSU)-versus-private debate, Kumar said their view is “quite bottom-up,” with preferred stocks in both groups. But he acknowledged that as a pack, PSU banks have grown credit faster than private banks in recent quarters. Many large PSUs, he said, are growing above 13–14%, while private banks are expanding at around 10–11%. Asset quality is “benign” across both categories. PSU banks, he said, also performed well on margins, though he cautioned that future rate cuts could affect PSU margins more because the rate pass-through on the asset side has been lower than in private banks.

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Kumar also commented on the outlook for IndusInd Bank. He said the bank’s plan to achieve a 1% return on assets (ROA) will likely be delayed. “It is going to get achieved in financial year 2027-28 (FY28) rather than 202-27 (FY27),” he said, pointing to three consecutive quarters of loan book contraction and cleanup efforts underway in microfinance, commercial vehicle loans and credit cards.

The stress in microfinance institution (MFI) loans, he said, has stabilised but has “not materially improved.” He expects the segment to require “another one or two quarters” before it fully recovers, but said he is unsure whether past growth levels in the MFI space are achievable again.

For the full interview, watch the accompanying video

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