Bank credit in India is expected to grow by 12%-13% in the current financial year (FY25-26), an increase of 100-200bps (basis points) from last year’s estimated 11%-11.5% growth, according to a research note by CRISIL Ratings. The rise is being supported by favourable regulatory measures, tax incentives and a softening of interest rates.
The report highlights two key policy changes by the Reserve Bank of India (RBI) that are expected to improve credit flow:
Rollback of Risk Weight Increase: Effective 1 April 2025, RBI has withdrawn the 25-percentage point increase in risk weights for bank loans to certain categories of non-banking financial companies (NBFCs). This move is expected to boost lending to NBFCs which had slowed significantly in FY24-25.
Deferral of Stricter Liquidity Norms: RBI has also deferred the implementation of tighter liquidity coverage ratio (LCR) norms by a year. This provides banks more flexibility to direct funds toward credit growth instead of holding them as reserves.
Additionally, CRISIL says recent income tax cuts announced in the Union Budget, combined with expected low inflation and repo rate reductions of up to 100bps (50bps already in 2025 and 50bps more likely), are likely to spur consumption and loan demand — particularly in the retail segment.
Sector-wise Trends
Corporate Credit: Lending to corporates, which makes up about 41% of overall bank credit, is projected to grow 9%-10% this fiscal. This is up from about 8% in FY24-25, driven largely by improved flow to NBFCs and increased investment in infrastructure sectors like cement, steel and aluminium. However, credit growth in other sectors may remain cautious due to tariff uncertainties.
Retail Credit: Retail loans — about 31% of total lending — are expected to grow 13%-14%, up from around 12% last fiscal. Home loans, the largest part of this segment, are set to benefit from improved affordability in a low-interest-rate environment. Though banks will be cautious with unsecured lending, better performance of recent portfolios could lead to moderate growth in the second half of the year, the rating agency says.
MSME Lending: Credit to micro, small and medium enterprises (MSMEs), comprising about 16% of total bank credit, is estimated to remain strong at 16%-17%, supported by government initiatives and improved digital data access that help banks assess creditworthiness more efficiently.
Agriculture Loans: Agricultural lending is likely to stay stable at 11%-12%, contingent on monsoon performance, CRISIL says.
Subha Sri Narayanan, director at CRISIL Ratings, says, "Credit growth in the corporate sector, which accounts for about 41% of bank loans, is expected to be 9%-10%, compared with around 8% estimated for fiscal 2025, as lending to NBFCs—one of the largest sub-segments of corporate credit and a key contributor to growth prior to FY24-25 - improves with the rollback of higher risk weights. However, such growth in lending to NBFCs may still be lower than the levels seen in the past as banks will be more selective going forward."
Despite the positive credit outlook, CRISIL notes that deposit mobilisation remains a critical factor. While the gap between credit and deposit growth has narrowed to under 100bps in recent months, this has been due to slower lending rather than a pickup in deposits.
"While the gap between credit growth and deposit growth has narrowed to less than 100bps in recent months, this is on account of a slowdown on the asset side. While deposit growth has been constrained by tight systemic liquidity, the end of March 2025 saw liquidity turning to surplus and has remained so in April. With the RBI assuring adequate liquidity, the scenario should be more benign going ahead. This should support deposit growth and, in turn, credit growth," Vani Ojasvi, associate director of CRISIL Ratings.
However, systemic liquidity turned into a surplus by the end of March 2025 and has remained so in April. With RBI’s assurance of maintaining adequate liquidity, deposit growth is expected to improve and support credit expansion.
CRISIL’s outlook suggests that India’s banking sector is poised for a healthy uptick in credit growth this fiscal, aided by supportive policies, rising consumption, and improved economic sentiment. However, the pace of deposit growth will remain a key factor to watch as it underpins the sector’s ability to sustain lending momentum. As banks tread a careful path between growth and risk management, the challenge will be to balance rapid expansion with long-term financial stability.
