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Informist, Wednesday, Sept. 10, 2025

MUMBAI – The incremental credit flow of banks is expected to rise to INR 19 trillion to INR 20.5 trillion in 2025-26 (Apr-Mar) from INR 18.0 trillion last year on the back of a boost in demand due to the cut in goods and services tax, according to rating agency ICRA. This will translate to a credit growth of 10.4-11.3% for banks compared with 10.9% growth in FY25 and 16.3% growth in FY24, ICRA said in a release Wednesday. 

The credit growth of non-bank finance companies, excluding the infrastructure-focused entities, is expected to be 15-17% in the current financial year, compared with 17% in FY25 and 24% in FY24, the rating agency said. "... the recent GST rate cuts aimed at spurring domestic demand and to partly offset the tariff impact on the exports would support credit expansion for banks and NBFCs in the near term," ICRA said. "With the upcoming CRR (cash reserve ratio) cut and GST rationalisation, ICRA foresees credit growth at the higher end of its estimated range of 10.4-11.3% for banks and 15-17% for NBFCs."

Banks will be better positioned against financial markets as a source of funds going forward, as the rise in credit costs will be moderate, the rating agency said. ICRA expects the credit cost of banks and NBFCs to go up by nearly 13 basis points and 30 bps, respectively, with the impact being more pronounced in the non-housing segments, A.M. Karthik, senior vice president and co-group head of ICRA, said. 

Additionally, the easing of the credit-deposit ratio and abundant liquidity in the banking system will also be supporting factors for the credit growth, it said. However, the rating agency remains watchful of the asset quality, especially in the micro, small, and medium enterprise segment. Notwithstanding the expected improvement in economic activities and outlook on credit growth, ICRA said it remains watchful of the asset quality. The lenders have been facing loan quality risks and are susceptible to the uncertainties emerging from the evolving geopolitical conditions, the rating agency said. 

Some of the small and mid-sized emerging NBFCs face elevated risks, especially the ones with low capital buffers and high overdues from borrowers, which will impact their earnings, ICRA said. "These entities also have relatively limited financial flexibility in terms of refinancing or raising equity capital to absorb losses and may be prone to credit risk..." it said. 

Barring the microfinance sector, ICRA maintains a stable outlook for banks and non-banks as the soothing impact of the lower cost of funds will support their margins and overall earnings, the rating agency said.  End

Reported by Kabir Sharma

Edited by Saji George Titus

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