Retail Lending Drives Over 7% Growth in Bank Credit in FY26

New Delhi- Bank credit growth in India remained steady during the current financial year, with gross banking credit (GBC) rising by 7 per cent to Rs 1,95,273 billion in the first eight months of FY26 up to the end of November, largely supported by strong retail lending, according to a report released on Tuesday.

A report by Crisil Intelligence noted that secured retail loans—particularly housing and gold loans—formed a significant portion of incremental credit during the period. Retail lending currently accounts for nearly one-third of total gross banking credit.

The report also highlighted a moderation in unsecured loan growth following the Reserve Bank of India’s increase in risk weights and the adoption of stricter underwriting standards by banks.

“Incremental credit to Micro, Small and Medium Enterprises (MSMEs) has doubled, driven mainly by public sector banks (PSBs), whose asset quality has improved along with their share in overall outstanding credit,” the report said.

The share of incremental credit flowing to MSMEs rose sharply to 32.5 per cent from 17.7 per cent a year earlier. Additionally, MSMEs’ share in total outstanding credit increased by 174 basis points, supported by strong loan disbursements from PSBs.

Public sector banks also led credit expansion in rural and semi-urban regions, reflecting a pickup in rural demand. However, the report pointed out that high-value industrial loans declined, signalling subdued capital expenditure activity. In contrast, working capital demand remained stable, while credit to non-banking financial companies showed early signs of recovery after a period of regulatory tightening.

On asset quality, Crisil Intelligence said PSBs continued to show improvement, with gross non-performing assets declining to 2.5 per cent in September 2025 from 2.8 per cent in March 2025.

Separately, a report by SBI Mutual Fund projected bank credit growth at 13–14 per cent in FY27. Bank credit growth accelerated from 9 per cent in May to 11.4 per cent by November 2025, with overall credit expected to expand by 10.5–11 per cent in FY26.

The fund house further noted that household credit is likely to grow faster than corporate credit, adding that sectors dependent on credit-led demand and premium consumption trends are expected to perform better in the near term.

With inputs from IANS