Icra on Wednesday revised upwards its FY26 bank credit growth estimate to 10.7 -11.5% from the earlier 10.5% driven by festive demand, GST reforms and liquidity boost by RBI.
The rating agency however said gross non-performing assets of the banking system will increase by up to 2.3% after multiple years of a steady decline in the number.
Icra maintained a "stable" outlook for the banking system with no significant capital requirements being anticipated. It said banks remain "cautious" in lending to non-banking financial companies (NBFCs) and the corporate demand is yet to see any meaningful revival till now.
31 October 2025
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The credit growth is expected to be driven by the retail and micro, small and medium enterprise (MSME) segments, it said, adding that the "episodic shift" of credit demand from large well rated-borrowers from capital markets to banks and vice versa remains opportunistic and sustainability of the same is yet to be clear.
"H1FY26 has seen incremental credit offtake of ₹10.1 lakh crore with a sizeable credit expansion taking place in September 2026, prompting us to revise upwards our full year credit offtake projection," the agency's sector head Sachin Sachdeva said.
The robust offtake in H1 was driven by partial upfronting of demand from Q3FY26 to Q2FY26 given the early onset of festive season, supported by GST cuts, he said, adding that the incremental credit offtake in H2FY26 is expected ₹9.4-10.9 lakh crore.
After multiple quarters of challenges on the net interest margins front, the banking system is set to witness an improvement in the key metric influencing the core income, the agency said.
From a regulatory measures perspective, it said the transition to the expected credit loss (ECL) system of provisioning over a five-year period is unlikely to be detrimental for lenders, it said, estimating the impact on core capital levels to be less than 1.50%.
"Banks are well positioned to absorb the impact of the changes related to capital charge for credit risk and ECL with resilient capital buffers," Sachdeva said.
The proposed reductions in risk weights for certain corporate and MSME exposures are expected to benefit capital ratios, except for commercial real estate exposures, which will see increased risk weights, he added.
