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Informist, Monday, Sept. 15, 2025

MUMBAI – Bank credit is seen growing at 11-12% in the financial year 2025-26 (Apr-Mar), higher than the decadal average of 10.5%, driven primarily by government and regulatory support and an uptick in domestic consumption, Crisil Ratings said in a report Monday. "Retail credit will gain the most and drive the overall credit growth, while other segments will be largely rangebound," according to the report.

Bank credit growth remained subdued in Apr-Jun owing to slower-than-expected revival in retail demand and continuing caution on unsecured lending, as per the report. Substitution by corporate bonds, resulting from a faster transmission of the repo rate cuts by the Reserve Bank of India, also led to muted growth in bank credit, the report added. The RBI has reduced the benchmark repo rate by 100 basis points so far in 2025, bringing it to 5.50%.

Deposit growth is seen to be at a comfortable position for the expected pick-up in bank credit, aided by the central bank's measures to enhance systemic liquidity and other measures, including a reduction in risk weights on bank loans to non-banking finance companies, Crisil said in the report. 

"Retail credit, which comprises 33% of bank loans, is expected to grow higher at 13% this fiscal from 11.7% last fiscal," Krishnan Sitaraman, chief ratings officer at Crisil Ratings, said. "The reduction in the goods and services tax should boost consumption, spurring retail credit demand.... 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."

Within retail credit, home loans, which account for nearly 50%, are expected to benefit from lower interest rates, the report said. Gold loans, which constitute a small portion of the retail portfolio, are also expected to expand and continue to yield robust growth. Growth in the micro, small, and medium enterprises segment, which accounts for 17% of overall credit, is seen steady at 14%. 

Meanwhile, credit growth in the corporate sector is expected to moderate a little to 9% in FY26, from 9.7% in FY25, owing to the sluggish first quarter. Bank lending to non-banking finance companies is expected to pick up in Oct-Mar due to the rollback of higher risk weights on exposures in this segment and the lower base of the previous fiscal, the report said. However, banks are likely to exercise caution in some sub-segments, including export-oriented units, the report said. Agricultural credit growth is seen at 10%, aided by another season of adequate rains and positive growth in harvest.

"There was a more than 60% 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," Ajit Velonie, senior director at Crisil Ratings, said. "This has had an impact on bank credit to corporates, which grew nearly 8% on year till July. As the repo rate cuts cascade to bank lending rates, we will see some reversal of the substitution by the corporate bond market."

However, the ratings agency said reliance on corporations' own funds, equity fundraising for planned spending, and tariff-related uncertainties may delay capital expenditure and any future policy rate cuts that could prolong corporate bond market substitution will bear watching. The evolving external environment may also pose a downward risk to India's GDP and, in turn, to bank credit growth, the report said.  End

Reported by Gowri Lakshmi

Edited by Rajeev Pai

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