November Newsletter
December 2023

From Chief Ratings Officer’s Desk

From the buoyant construction sector to India’s electrification drive and increasing focus on infrastructure driving copper demand, this newsletter explores the multifaceted drivers boosting India's economic landscape.

In this edition, we also look at the Monetary Policy Committee's recent bi-monthly meeting, which played out largely on expected lines. The unchanged policy rate and stance, coupled with a unanimous vote, set the stage for a policy tone resonating optimism in growth rather than a hawkish stance on inflation. Bolstered by a robust Q2 FY2024 GDP print, exceeding forecasts at 7.6%, the Committee outlines compelling reasons for a positive growth outlook. Although we partly concur with the RBI Governor and the MPC’s assessment of the fundamentals pertaining to the Indian economy, we remain cautious over the near-term outlook for growth. Our concerns are primarily driven by the agriculture sector, amid the sharp decline in kharif output across major crops and the lags in rabi sowing, in the backdrop of the seasonally low reservoir levels.

The life insurance industry foresees substantial growth, with new business premiums expected to reach Rs. 4.06-4.14 trillion in FY2024. Operational savings and environmental consciousness are fueling the rise of electric buses, projected to constitute 11-13% of new bus sales by FY2025. As we navigate these economic dynamics, this newsletter provides insights into emerging trends, policy initiatives, and events shaping India's financial landscape.

Additionally, ICRA foresees the burgeoning electric bus sector as a cornerstone in India's electrification journey. The report explores estimations of e-bus adoption, charting a course for healthy traction in the coming years. The Government has also recently announced the PM e-Bus Sewa scheme, which aims to provide 10,000 e-buses in 169 cities under a public-private partnership (PPP) model.

We also scrutinise ICRA's projections for the domestic refined copper demand, navigating through factors such as infrastructure development and renewable energy transition. The Government’s extensive infrastructure development plans bode well for the domestic copper demand as we foresee consumption to grow by 11% in FY2024.

As we explore the intersections of finance and policy, ICRA expects the pace of personal loan sell-downs to taper at least in the near term, following the increase in capital requirements on such loans for the purchasing banks, which would thereby augment the costs for all parties. The report sheds light on the impact of RBI's latest notification on consumer credit exposure. Unpacking the implications on personal loan sell-downs, we analyse the potential shifts in momentum and costs for all parties involved.

This issue concludes with regular features, monthly rating updates, a peek into the upcoming ICRA events, and noteworthy news features related to the company.

We trust this compilation proves both useful and interesting to you.

Best Regards

K. Ravichandran
Chief Ratings Officer, ICRA Ltd.

Vikram V

Vikram V

Vice President & Sector Head, ICRA Limited

ICRA’s views on Domestic Renewable Energy sector

Abhishek Lahoti

Abhishek Lahoti

Assistant Vice President & Sector Head, ICRA Limited

ICRA’s views on retail mall operators

Neetika Shridhar

Neetika Shridhar

Assistant Vice President, ICRA Limited

State Government Securities Auction – Key Highlights

ICRA Research Updates
December 2023
Roads & Highways Sector: MoRTH awards are expected to decline to 7,000-7,500 km in FY2024 against ICRA’s earlier estimate of 9,000-9,500 km
Indian Shipping Sector: Container freight rates firm up amid the Red Sea conflict; long-term outlook remains subdued
Sugar Sector: Firm sugar prices to support margins of the industry players; ethanol blending ratio to fall in ESY2024

Please click here to check out the video on the ICRA's Research Offerings.

ICRA in News
December 2023
The Economic Times, | 29th December

ICRA sees bank credit growth at 12-13% in FY25

The Financial Express | 21st December

Road awards by MoRTH to decline by 40-43% on-year to 7,000-7,500 km in FY2024, says ICRA

Business Standard | 20th December

Margins of North Indian tea gardens to shrink in FY24, predicts ICRA

Upcoming Events
Watch this space for upcoming events
Aditi Nayar

Aditi Nayar

Chief Economist, Head-Research & Outreach, ICRA

Tone shifts to growth optimism

The Monetary Policy Committee’s (MPC) penultimate bi-monthly meeting for FY2024 largely played out along expected lines. The policy rate and the stance were left unchanged, with a unanimous and a 5:1 vote, respectively. While the inflation forecasts were unchanged, there was a sharp upward revision in the MPC’s growth forecasts for H2 FY2024. Overall, rather than coming across as hawkish on inflation, the overarching tone of this policy was of optimism on growth.

Abhishek Dafria

Abhishek Dafria

Structured Finance
Vice-President and Group Head – Structured Finance Ratings, ICRA

Loan sell-downs of personal loan pools may see a temporary pause following the RBI’s decision to increase risk weights:

ICRA observed that the latest notification by the Reserve Bank of India (RBI) to increase the risk weights for consumer credit exposure (mainly on unsecured asset classes) of banks and non-banking financial companies (NBFCs) by 25% is likely to impact the loan sell-downs of personal loan retail pools, which had gained momentum in recent years. Loan sell-down (direct assignment transactions) by personal loan NBFCs amounted to about Rs. 1,150 crore in FY2023 and had already crossed Rs 800 crore in H1 FY2024 (i.e. 4x of the volumes done in H1 FY2023).

Kinjal Shah

Kinjal Shah

Commercial Vehicle Sector
Vice President & Co-Group Head – Corporate Ratings, ICRA

E-buses to continue to be on fast track; to account for 11-13% of new bus sales by FY2025:

ICRA foresees electric buses (e-buses) to be at the forefront of India’s electrification drive, with the segment expected to witness healthy traction going forward. ICRA estimates e-buses to account for 11-13% of new bus sales by FY2025. The traction in the e-bus segment is already visible over the past couple of years, with e-bus volumes as well as penetration levels improving consistently, to 7% in FY2023. Steady progress has been made over this period towards meeting the e-bus deployment targets under the Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme, and this is likely to gain pace over the coming months, till the scheme expires in March 2024.

Jayanta Roy

Jayanta Roy

Non-Ferrous Metals Sector
Senior Vice President and Group Head, Corporate Ratings, ICRA

India’s refined copper consumption to grow by 11% in FY2024, despite global headwinds

Indian primary copper industry, ICRA has estimated the domestic refined copper demand growth to remain healthy at ~11% in FY2024 and FY2025, outpacing the rate of global growth in copper demand, given the Government’s thrust on infrastructure development and a gradual transition to renewable energy. ICRA projects copper prices to remain range-bound at current levels of ~8200-8300/tonne in the near term. ICRA foresees a stable outlook for the domestic copper industry.

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