CRISIL Projected 12-13% Growth for Banking Credit

India’s banking sector is projected to witness a credit growth of 12-13% in FY26, slightly above the 11-11.5% growth estimated for FY25. This optimistic forecast, as stated by Crisil Ratings, is driven by multiple factors such as supportive regulatory measures, a boost in consumption from tax cuts, and softer interest rates. While this positive outlook is encouraging, the ability of banks to sustain this growth will depend on crucial factors, notably deposit growth. Additionally, the Reserve Bank of India’s (RBI) recent regulatory adjustments are likely to support both the banking and non-banking financial companies (NBFCs) sectors, which have faced challenges in recent years. These measures, including a rollback in the risk weights for bank loans to certain NBFCs, are expected to rejuvenate lending to these institutions and provide a boost to overall credit growth.

Key Points

Forecast for Bank Credit Growth in FY26

• Projected Growth: 12-13%, slightly higher than FY25 (11-11.5%).

Supporting Factors

• Regulatory Support: Adjustments to risk weights for loans to NBFCs and deferred implementation of liquidity coverage ratio (LCR) norms.
• Tax Cuts: Expected boost to consumption leading to higher credit demand.
• Softer Interest Rates: Expected to encourage borrowing across sectors.

Regulatory Changes Impacting Credit Growth

• Rollback of Risk Weights for NBFCs: As of April 1, 2025, the RBI rolled back a 25-percentage-point increase in the risk weights for bank loans to certain NBFCs, which was originally implemented in November 2023.
• Effect on Credit Flow: This rollback will improve credit flow to NBFCs, which had seen slower growth in FY25.
• Deferment of LCR Norms: The RBI has postponed the implementation of stricter Liquidity Coverage Ratio (LCR) norms by one year.
• Impact on Banks: This delay allows banks to use the funds, which were otherwise reserved as a cushion, for lending purposes.

Credit Growth Segments

Corporate Credit

• Forecast Growth: 9-10% for FY26, compared to 8% in FY25.
• Share of Corporate Credit in Total Bank Loans: Approximately 41% of total bank loans.

Lending to NBFCs

• Growth Rate: While the growth is expected to be in double digits, it will be lower than the 21% growth observed in FY23 and FY24.
• Sub-Segment of Corporate Credit: Lending to NBFCs constitutes about 18% of corporate credit.

Key Insights from Crisil Ratings

• Impact on Banking System: A compound annual growth rate (CAGR) of 21% in exposure to NBFCs in FY23 and FY24, which reduced to 6% in FY25.
• Future Outlook: Loans to NBFCs are expected to grow at a double-digit rate in FY26 but may not reach the high growth seen in previous years.