By Bl Mumbai Bureau

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Bank credit is seen growing 11-12 per cent this fiscal after a slower first half, owing to government and regulatory support and a pick-up in consumption even as gross non-performing assets (GNPAs) have bottomed out, according to Crisil Ratings.

That would be a shade higher than last fiscal’s (11 per cent growth) and above the decadal average growth (10.5 per cent) as well, senior officials said in the agency’s banking conclave.

Overall, while there are some tailwinds to lift credit growth somewhat this fiscal, the evolving external environment could pose downside risks to India’s GDP growth estimates (of 6.5 per cent for FY26) and, in turn, to bank credit growth and so bears watching, they said.

Retail credit will gain the most (13 per cent vs 12 per cent in FY25) and drive the overall credit growth, while other segments will be largely range-bound.

Global uncertainties

The agency has estimated corporate loan growth at 9 per cent (9.7 per cent), MSME at 14 per cent (unchanged) and agriculture at 10 per cent (9 per cent). It cautioned that lingering global uncertainties could, however, affect these estimates.

The officials opined that bank credit growth in the first quarter of this fiscal was muted because of a slower-than-expected revival in retail demand, continuing caution on unsecured lending and substitution by corporate bonds stemming from faster transmission of the repo rate cuts in that market.

In the second half of this fiscal, however, credit growth is expected to pick up as the composite effect of stimuli from government (GST rate cuts and income tax revisions) and RBI (cash reserve ratio cut, less stringent liquidity coverage ratio guidelines, a reduction in risk weights on bank loans to NBFCs and better clarity regarding project finance norms) plays out.

Further, deposit growth, a crucial factor for sustainable credit growth, is seen adequate for the expected uptick in bank credit, aided by the Reserve Bank of India’s measures to enhance systemic liquidity, including a four-phased cash reserve ratio reduction and revision in the liquidity coverage ratio norms.

Krishnan Sitaraman, Chief Ratings Officer, Crisil, said: “Retail credit, which comprises 33 per cent of bank loans, is expected to grow higher at 13 per cent this fiscal from 11.7 per cent last fiscal. The reduction in the goods and services tax should boost consumption, spurring retail credit demand.

“Lower interest rates, benign inflation and income tax cuts introduced in the Union Budget are spurs, too. Within the retail segment, unsecured loans are expected to see faster growth, fuelled by the consumption uptick and the statistical low-base effect of last fiscal.”

However, banks are likely to exercise caution especially towards the export oriented units. Growth in corporate credit, which today stands at around 38 per cent of bank credit, has been muted in the first quarter.

“We expect a revival in [corporate credit] growth with better transmission of repo rate cuts to bank lending rates and hence easing of the bond market substitution which was seen in Q1,” said Krishnan.

The agency assessed that the better performance of newer unsecured portfolios, which have benefited from stricter underwriting standards introduced by lenders, should be a growth positive.

“Home loans remain the largest constituent of retail credit (>50 per cent) and growth here will benefit from lower interest rates. While gold loans are a relatively small proportion of the retail portfolio of banks, the segment has expanded rapidly and its growth will continue to be robust,” said Krishnan.

He underscored that Gross NPAs have bottomed out and are expected to be under control at around 2.3 per cent to 2.5 per cent by March 26. This will be slightly higher than what we seen at March 25.

However, there could be an uptick in the NPAs seen in some pockets of the MSME segment, especially those linked to export oriented businesses

Corporate loans

Ajit Velonie, Senior Director, observed that there was a more than 60 per cent spurt in corporate bond issuances in the first quarter on-year because of the faster transmission of repo rate cuts compared with bank lending rates. This has had an impact on bank credit to corporates, which grew just ~3.8 per cent on-year till July 2025.

“As the repo rate cuts cascade to bank lending rates, we will see some reversal of the substitution by the corporate bond market. Bank lending to NBFCs is expected to pick up in the second half of this fiscal on the back of the rollback of higher risk weights on exposures in this segment and the lower base of last fiscal,” he said.

The agency noted that reliance on own funds by corporates, equity raising for planned spends and tariff-related uncertainties leading to postponement of capital expenditure, as well as any future policy rate cuts that could prolong corporate bond market substitution, will bear watching.

Published on September 15, 2025