As per a report published by ICRA on Wednesday, banks' incremental credit supply is expected to grow to Rs.19-20.5 lakh crore in FY2026 from Rs.18 lakh crore in FY2025. This is a year-on-year growth of 10.4-11.3 per cent, marginally lower than that of 10.9 per cent in FY2025.
The report further adds that credit from NBFCs (excluding infrastructure-oriented entities) will increase by 15-17 per cent in the ongoing fiscal year, marginally lower than 17 per cent in FY2025.
Although incremental bank credit growth has remained slow in the initial five months of FY2026—Rs.3.9 lakh crore vs Rs.5.1 lakh crore in the corresponding five months last year—the GST rate reductions targeted at increasing domestic demand are likely to buoy credit growth for both banks and NBFCs in the near term.
ICRA anticipates that with the forthcoming CRR reduction and GST rationalisation, credit growth may touch the higher end of the estimated range—10.4-11.3 per cent for banks and 15-17 per cent for NBFCs.
In addition, the steady downward repricing of the deposit base will also help make banks more competitive compared to debt capital markets for the rest of the year. The report also pointed out that a relaxation of the credit-to-deposit ratio, coupled with bountiful liquidity in the banking sector, will also support credit expansion.
ICRA Senior Vice President Anil Gupta said, "Asset quality stress in retail and MSME segments led to deceleration in growth for private sector banks as well as NBFCs. With economic activity pick-up post GST rate cuts, the appetite for growth shall improve, which will underpin the credit growth."
The report also cautions that lenders continue to be vulnerable to loan quality risks and uncertainties driven by changing geopolitical developments.
As of July 2025, MSME loans and unsecured personal loans represented 17 per cent of banks' total non-food credit of Rs.184 lakh crore. For NBFCs, unsecured personal and consumption loans along with small business loans constitute approximately 34 per cent of the total credit of Rs.35 lakh crore as of March 2025.
Although macroeconomic shifts are not anticipated to affect lenders in the first order, their customers may suffer as a result of declining demand or income shocks. For example, transport operators with exposure to the export-oriented garment sector may see reduced capacity utilisation, which can impact the workforce's ability to repay outstanding debts like microfinance, personal loans, or home loans.
In spite of these headwinds, the report mentions that falling funding costs will support lenders' margins and aggregate earnings.
Overall, ICRA has had a stable outlook for banks and NBFCs (except microfinance, where the outlook is negative) due to the availability of sufficient capital buffers that can neutralize the estimated unforeseen losses.
Read also| Mutual Funds Pump Rs 70,500 Crore into Equities in August, Second-Highest Ever
Read also| Jefferies Sees India as Prime for Sustained Long-Term Growth
