India’s banking sector credit growth is expected to moderate to 11.0-11.7% in FY26-27 from 15.9% in the year before, amid heightened geopolitical uncertainties and evolving interest rate dynamics, according to rating agency ICRA. However, the projected growth would remain above the 10.9% recorded in FY25.
In absolute terms, bank credit expansion is projected at ₹23.5-25 trillion in FY27, taking total credit to ₹236.4-237.9 trillion, the agency said.
ICRA said the ongoing West Asia conflict and disruption in the Strait of Hormuz have raised risks for India’s trade and energy supplies. With West Asia accounting for 14-20% of India’s trade, higher oil prices could widen the current account deficit, raise inflation, weaken consumption and pose downside risks for multiple sectors.
1 April 2026
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“ICRA expects bank credit growth to ease in FY27 following the sharp expansion in FY26 as the impact of elevated global uncertainties, including the West Asia war, and higher crude oil prices begin to reflect in macroeconomic and financial conditions,” said Sachin Sachdeva, Vice President and Sector Head, ICRA.
He added that vulnerable sectors such as micro, small and medium enterprises are likely to bear the brunt of supply chain disruptions, which could make banks cautious in lending to the segment.
ICRA said deposit growth continued to lag credit growth in FY26, though it improved towards the end of the fiscal as banks stepped up fund raising. It added that the cost of deposits is not expected to decline materially, which would keep net interest margins under pressure.
On asset quality, the agency said gross non-performing advances are expected to remain benign at 2.0-2.1% in FY27, though geopolitical uncertainties may weigh on MSMEs and unsecured retail loans, leading to a slight increase in slippages.
ICRA retained a stable outlook on the banking sector for FY27, citing comfortable capitalisation, manageable asset quality risks and steady profitability. It expects return on assets at 1.2-1.3% and return on equity at 12.3-13.2% in the fiscal year.
