Retail loan growth improves in Q1, corporate demand stays firm: Equirus

Retail loan disbursements strengthened across banks in Q1 FY27, while corporate credit demand remained firm, driven by working capital needs, refinancing and a shift from bond markets

Credit growth gathered pace in the first quarter of FY27 as retail loan disbursements improved across banks and corporate lending remained resilient.

 

However, the latter continued to be driven largely by working capital demand, refinancing and a shift in borrowing from bond markets rather than a broad-based private capital expenditure cycle, according to an Equirus Securities mid-quarter banking review.

 

The brokerage said retail credit, which had slowed over the past few quarters, showed signs of recovery with stronger disbursements in mortgages, personal loans and vehicle finance across large private sector banks.

 

At the same time, corporate loan demand remained healthy, supported by working capital requirements, refinancing activity and borrowers preferring bank credit amid uncertain market conditions rather than embarking on fresh capacity expansion.

   

Among large private lenders, ICICI Bank and Axis Bank led loan growth, while Bank of Maharashtra continued to outpace peers among public sector banks.

 

Federal Bank also maintained healthy momentum, aided by faster growth in gold loans, commercial banking and loan against property segments.

 

Despite the improvement in credit demand, profitability metrics remained under pressure. Net interest margins (NIMs) were mixed across banks during the quarter as the full impact of the RBI’s December 2025 policy rate cut continued to weigh on lending yields.

 

Yields on advances declined across most banks owing to a changing loan mix and lower benchmark rates, although falling funding costs helped cushion some of the impact.

 

Public sector banks generally fared better than their private-sector counterparts on a sequential basis as their margins proved relatively more resilient.

 

Deposit mobilisation remained relatively subdued, prompting loan-to-deposit ratios to increase across most lenders.

 

While the cost of deposits eased for several banks as high-cost term deposits matured, analysts noted that funding remains an area of focus, particularly for lenders pursuing faster loan growth.

 

The report highlighted diverging strategies across banks. Federal Bank has shifted its focus towards higher-yielding granular segments such as gold loans and commercial banking to improve risk-adjusted returns.

 

Punjab National Bank continues to see strong traction in retail, agriculture and micro, small and medium enterprise (MSME) lending backed by a robust sanctions pipeline.

 

HDFC Bank reported an improvement in retail loan disbursements, especially in unsecured loans, mortgages and vehicle finance.

 

ICICI Bank said corporate demand was being supported by working capital utilisation, refinancing and migration of borrowers from the bond market to bank credit.

 

Looking ahead, Equirus expects credit growth to remain healthy, supported by a recovery in retail demand and continued corporate borrowing.

 

However, margin expansion is likely to remain constrained until lending yields stabilise, with the pace of deposit repricing and funding cost moderation expected to determine earnings performance over the coming quarters.