India’s banking system continued to show resilience in the current financial year, with overall credit growth remaining steady even as lending patterns underwent a marked shift towards safer, secured segments, according to a latest report by CRISIL Intelligence.
Gross banking credit outstanding rose 7% to ₹195,273bn (billion) as of November 2025, up from ₹182,440 billion in March 2025, the report says. "The expansion was led primarily by retail lending, which accounted for around one-third of total outstanding credit, reflecting sustained household demand amid cautious corporate borrowing."
A key trend highlighted in the report is the growing preference for secured retail loans. Banks increasingly channelled incremental credit into segments such as housing loans and loans against gold, while growth in unsecured personal loans moderated.
CRISIL attributes this shift to tighter underwriting standards, rising stress in certain unsecured portfolios and the impact of the Reserve Bank of India’s higher risk weight norms on unsecured retail credit.
Between October 2024 and October 2025, secured retail loans accounted for over 31% of incremental credit, compared with under 25% in the previous year. Housing loans made up roughly half of this incremental secured lending, while loans backed by gold jewellery saw a sharp rise in share, emerging as one of the fastest-growing components within retail credit.
In contrast, the report says unsecured retail personal loans lost momentum, with their share in incremental credit declining and year-on-year (y-o-y) growth easing. The report notes that concerns around borrower overleveraging and stricter risk assessments have prompted banks to rein in exposure to these segments.
Credit growth to micro, small and medium enterprises (MSMEs) emerged as another bright spot. Incremental lending to MSMEs more than doubled compared with the year-ago period, raising the segment’s share in overall incremental credit. This growth was driven largely by public sector banks (PSBs), supported by a combination of improved asset quality, a preference for secured MSME lending and changes in MSME classification norms.
CRISIL observed that while the overall asset quality of MSME portfolios remained stable, pockets of stress were visible in small-ticket unsecured business loans. The report also flagged external risks, noting that a portion of MSME credit remains exposed to potential disruption from US tariffs, particularly in export-oriented sectors such as textiles.
According to the report, PSBs outperformed (PSBs) outperformed private sector lenders during the period, increasing their share in incremental credit and marginally expanding their share of outstanding loans. PSBs also recorded an improvement in asset quality, with gross non-performing assets declining during the first half of FY25-26, despite relatively lower write-offs compared with private banks. The trend points to stronger risk management and underwriting discipline at State-owned lenders, the report says.
A notable geographic shift in lending was also evident, CRISIL says. "The share of incremental credit flowing to rural and semi-urban areas rose, while the dominance of metropolitan centres declined. PSBs played a leading role in this trend, reflecting a pickup in rural demand and stronger credit penetration outside major cities."
On the corporate side, the report says lending to large industrial projects showed signs of contraction. High-ticket industrial loans declined marginally, signalling subdued capital expenditure (capex) by large companies. CRISIL attributed this to healthy corporate cash balances, muted investment appetite in large projects and uncertainty stemming from global geopolitical developments and trade-related risks.
At the same time, demand for working capital loans remained steady, indicating that companies are borrowing mainly to support day-to-day operations rather than long-term expansion. The share of working capital loans in overall industrial credit edged up, while term loan exposure softened.
After a phase of regulatory-driven slowdown, credit to non-banking financial companies (NBFCs) showed early signs of revival. "While banks had earlier turned cautious on NBFC exposure, particularly in unsecured segments, recent data suggests a gradual pickup in lending as risk perceptions stabilise and funding conditions improve."
CRISIL says the evolving credit mix reflects a banking system that remains growth-oriented but more risk-aware. With retail and MSME lending anchoring credit expansion and banks prioritising secured exposures, the report suggests that the sector is positioning itself for sustainable growth amid lingering global and domestic uncertainties.
