Banks' Credit Growth to Accelerate in FY26, Led by Retail Credit

Strategic Insights -

Banks in India can expect their credit growth to pick up in the second half of fiscal year 2026, with a projected increase to 12% for the entire year. Retail credit is expected to be the primary driver of this growth, while corporate loans are anticipated to grow at a slower pace. However, the sector faces challenges, including a decline in household contributions to deposit accretion, potential deposit stability issues, and concerns about lending to small businesses.

Key Takeaways:

  • Credit growth for banks in India is projected to accelerate in the second half of FY26, reaching 12% for the entire year.
  • Retail credit is expected to be the main driver of this growth, with corporate loans growth anticipated to be slower.
  • The share of household contributions to the deposit base has declined from 64% to 60% over the past five years, raising concerns about deposit stability.
  • Deposit growth is seen as adequate for the expected uptick in bank credit, aided by the RBI's measures to enhance systemic liquidity.
  • The gross non-performing assets ratio is expected to increase to 2.3-2.5% by the end of FY26, but remains low relative to historical highs.
  • Small businesses, particularly those with loans under Rs 10 lakh, pose an asset quality risk, and some US or export-dependent small businesses may report stress if there is no revision on tariff fronts.

Statistics:

  • Credit growth projection for FY26: 12%
  • Projected growth in retail credit: 12.5% (Crisil report)
  • Share of household contributions to deposit base (5-year decline): 4% (Crisil report)
  • Gross non-performing assets ratio projection for FY26: 2.3-2.5% (Crisil report)

Sources:

[1] Crisil report