At the same time, if the ongoing crisis in West Asia persists, the projections may need revision, according to ICRA and Moody’s.
“For next year FY27, as of now, we expect it (credit) to remain steady at around 11.5 per cent kind of a range. This is assuming minimal impact of what is really happening in the Middle East. Should that crisis continue for a longer period, one might need to revisit. But as of now, the base case analysis is that many things would subside sooner,” said Karthik Srinivasan, group head, financial sector ratings, ICRA.
However, the ongoing crisis would have minimal impact on the profitability of the banking sector, said analysts at the rating agencies.
Profitability in the banking sector is expected to remain healthy, supported by stronger core earnings. Pre-provision operating profit is estimated at about 3 per cent of assets, enabling banks to absorb credit costs while maintaining return on assets in the range of about 1.5–2 per cent.
On the mobilisation of current account and savings accounts, Srinivasan said, “We need to move beyond CASA and give some benefits to common depositors as well. They will also become intelligent. Gone are the days of 45–50 per cent CASA that we saw a couple of years back. That was a period wherein credit growth was slow. The banking system is flush with liquidity.” Going forward, CASA is expected to stay around 35–36 per cent.
As far as banks’ asset quality is concerned, gross non-performing asset (NPA) ratios declined to around 2–3 per cent while provision coverage ratios strengthened to 70–80 per cent. The improvement follows the resolution of the earlier corporate bad debt cycle and reforms such as the Insolvency and Bankruptcy Code.
Banks have maintained strong capital buffers, with Tier-1 capital ratios ranging between 14–16 per cent, supported by improved profitability and internal capital generation, providing sufficient capacity to support credit expansion.
The outlook for non-banking financial companies (NBFCs) is also positive, with assets under management projected to grow 17–19 per cent to about Rs 42.1 trillion in FY26 from Rs 35.6 trillion in FY25, and further to around Rs 49.1 trillion in FY27.
Segment-wise, vehicle loans and home loans are expected to grow around 13–16 per cent, while loans against property may expand by 19–22 per cent.
Personal and consumption loans are projected to grow 17–20 per cent, and business loans about 12–16 per cent. Gold loans, which saw a sharp rise of over 60 per cent earlier, are expected to normalise to growth of about 17–19 per cent.
Microfinance lending, which contracted by about 11 per cent in FY25, is expected to stabilise with growth of 0–2 per cent in FY26 and recover to around 15–17 per cent in FY27.
Overall, both banks and NBFCs are expected to benefit from strong domestic demand, improving balance sheets and healthy profitability, supporting continued expansion of India’s financial sector.
 "Reserve Bank of India (RBI) data also suggest a sharp pickup in corporate credit growth, with credit to industry growing 9.6 per cent as of November 2025, compared with 8.3 per cent in the corresponding fortnight of last year")