NEW DELHI; The incremental credit flow of banks is expected to rise to Rs.19-20.5 lakh crore in FY2026 from Rs.18 lakh crore in FY2025 which represents a year-on-year (YoY) growth of 10.4-11.3 per cent for banks in the current financial year compared to 10.9 per cent in FY2025, according to an ICRA report released on Wednesday.
The NBFC credit (excluding the infrastructure-focussed entities) is projected to expand at 15-17 per cent in the current fiscal, compared to 17 per cent in FY2025, the report states.
While the pace of incremental bank credit growth in the current year lags at Rs.3.9 lakh crore for the first five months of FY2026 compared to Rs.5.1 lakh crore for the previous year, the GST rate cuts aimed at spurring domestic demand would support credit expansion for banks and NBFCs in the near term.
With the upcoming CRR cut and GST rationalisation, ICRA foresees credit growth at the higher end of its estimated range of 10.4-11.3 per cent for banks and 15-17 per cent for NBFCs.
Further, the gradual downward repricing of deposit base is likely to improve the competitive positioning of banks vis-a-vis debt capital markets for the rest of the year.
Additionally, the easing of credit to deposit ratio and abundant liquidity in the banking system shall also be supporting factors for the credit growth, the report further states.
ICRA senior vice president Anil Gupta said, “Asset quality stress in retail and MSME segments resulted in slower growth for private sector banks as well as NBFCs. With improvement in economic activity post GST rate cuts, the growth appetite shall improve, which will support the credit growth.”
However, the ICRA report also states that lenders have been facing loan quality risks and are susceptible to the uncertainties emerging from the evolving geopolitical conditions.
Loans to MSMEs and unsecured personal loans accounted for 17 per cent of the overall non-food credit of Rs.184 lakh crore for banks as of July 2025.
Loans to small businesses, and unsecured personal and consumption loans, stand at approximately 34 per cent of the total NBFC credit of Rs.35 lakh crore as of March 2025.
While the evolving macro-economic trends are not expected to have a direct, first-order impact on the lenders, their target borrower segments would be impacted by the overall demand weakness or income shocks emerging from these developments, for e.g. transport operators linked to an apparel sector, which is export dependent, would be faced with lower capacity utilisation.
Similarly, employees of these units would have liquidity issues to service their existing debt (microfinance, personal loans, home loans) because of the income shock, the report further stated.
While these headwinds remain, the soothing impact of the reducing cost of funds will support their margins and overall earnings for the lenders.
ICRA maintains a stable outlook for banks and non-banks (except microfinance, where the outlook is negative) in general, on account of the above factors and their current capital buffers, which are adequate to absorb any unforeseen losses, the report added.