Bank credit in India likely to grow at 12-13% in FY26: CRISIL Ratings

Tax sops, softer interest rates to support loan offtake

Bank credit in India is likely to grow 12-13 per cent in the current financial year (FY26), a tad higher the 11.0-11.5 per cent estimated for FY25, according to Crisil Ratings. The loan offtake will be supported by three tailwinds — the recent supportive regulatory measures, a boost to consumption from tax cuts and softer interest rates, it said.

 

However, deposit growth, a crucial support for credit growth, needs to be watched. Deposits grew by 10.3 per cent in FY25.

 

Crisil Ratings said in a statement on Tuesday that the two regulatory changes which would support growth were a rollback of hike in risk weightings for funding exposure to finance companies and the deferment of the implementation of the more stringent liquidity coverage ratio (LCR) norms by a year. The latter would mean funds, which were to be otherwise blocked to act as cushion, could now be used for lending.

 

 

As for non-banking financial companies (NBFCs), the Reserve Bank of India (RBI) has rolled back with effect from April 1 the 25-percentage-point increase in risk weightings for bank loans to certain categories of NBFCs announced in November 2023.

 

This will improve the credit flow to NBFCs. The banking system’s exposure to NBFCs had risen at a compound annual growth rate of about 21 per cent over FY23 and FY24, but it fell sharply to an estimated 6.0 per cent (February) in FY25. Bank loans to NBFCs may grow at a double-digit rate on a year-on-year (Y-o-Y) basis, but they would not be at the 21 per cent level seen in 2023 and 2024, said Subha Sri Narayanan, director, Crisil Ratings.

 

Credit growth in the corporate sector, which accounts for around 41 per cent of bank loans, is expected to be 9-10 per cent, compared with an estimated 8.0 per cent for FY25. The lending to NBFCs is one of the largest sub-segments of corporate credit (about 18 per cent) and was a key contributor to growth prior to FY25.

 

The RBI has also deferred the implementation of the more-stringent LCR norms by a year. Their implementation as proposed would have reduced the LCRs of most banks by 10-30 percentage points, it added.