Crisil expects banks’ credit growth to accelerate in H2 FY25 and reach 11–12% in FY26, up from 9.5–10% in Q1.
Retail credit will remain the primary driver, while corporate loan growth will be slower.
Government and regulatory measures, along with corporates shifting from bond markets back to banks, are likely to support loan growth.
Gross NPAs are projected to rise slightly to 2.3–2.5% by FY26, still low compared with historical levels.
Small business loans, especially under ₹10 lakh, and export-dependent firms could face asset quality stress if tariffs remain unchanged.
Domestic credit rating agency Crisil on Monday said banks' credit growth will accelerate in the second half of the fiscal year and inch up to 12% in FY26.
Retail credit will drive growth in loan books for banks in FY26, and corporate loans growth will be slower in the fiscal year, the agency said.
The agency flagged some concerns for the industry, including a decline in households' contribution to deposit accretion, which can lead to issues over deposit stability, and lending to small businesses, which can impact asset quality.
"The Q1 credit growth was slower at 9.5% and while it has inched up to 10%, it is still subdued. However, we expect the second half to lead to faster loan growth, which should take FY26 loan growth to 11-12%," Crisil Chief Rating Officer Krishnan Sitaraman told reporters.
He said government and regulatory measures, coupled with a likely reversal of an earlier trend of corporate borrowers going to alternatives like bond markets will help banks' credit growth.
He said the transmission of the Reserve Bank of India's (RBI's) rate actions into the marginal cost of funding-based lending rate is still catching up with 1% point reduction while rates in bond markets move even before the RBI announces its calls.
As the banks' rate offerings go lower, demand will shift to bank loans, he said.
Private capex demand growth, however, may take some time to revive as companies are likely to opt for settling of the global uncertainties before making big investment decisions, he said.
The agency also flagged some potential concerns on the deposit stability, pointing out that the share of household contributions to the deposit base has reduced to 60% from 64% over the last five years.
Deposit growth, a crucial factor for sustainable credit growth, is seen adequate for the expected uptick in bank credit, aided by the RBI's measures to enhance systemic liquidity, including a four-phased cash reserve ratio reduction and revision in liquidity coverage ratio norms, it said.
From an asset quality perspective, the agency said the gross non-performing assets ratio will go up to 2.3-2.5% by the end of FY26, but added that this will be very low when compared with the historical highs.
It, however, flagged the small businesses segment, especially loans under ₹10 lakh, as something to watch out for from an asset quality standpoint.
If there is no revision on the tariffs front, some US or export dependent small businesses may also report stress, it added.
