Bank credit growth to ease below 12% in FY27, says ICRA

India’s banking sector is likely to see a moderation in credit growth in 2026–27, even as overall expansion remains steady and asset quality stays broadly stable, according to a report by ICRA.

The agency has projected bank credit growth at 11.0–11.7% in 2026–27, down from a high 15.9% estimated for 2025–26, but still above the 10.9% recorded in 2024–25.

In absolute terms, credit expansion is expected to range between ₹23.5 lakh crore and ₹25.0 lakh crore, taking total outstanding bank credit to about ₹236.4–237.9 trillion.

ICRA attributed the expected slowdown primarily to rising global uncertainties and changing interest rate dynamics. The ongoing conflict in West Asia, including disruptions around the Strait of Hormuz, has increased risks for India’s trade and energy supplies. With the region accounting for a significant share of India’s trade, elevated crude oil prices could widen the current account deficit, add to inflationary pressures, and dampen consumption, thereby weighing on credit demand.

Sachin Sachdeva, Vice President and Sector Head at ICRA, said credit growth is expected to ease as macroeconomic and financial conditions adjust to these global developments. He noted that sectors such as micro, small and medium enterprises (MSMEs), which had been key contributors to recent credit growth, could face pressure from supply chain disruptions, potentially leading to more cautious lending by banks.

On the funding side, deposit growth lagged credit expansion during much of 2025–26, although it improved toward the end of the fiscal year as banks stepped up mobilisation efforts. This helped moderate the system-wide credit-deposit ratio. However, the cost of deposits is expected to remain elevated, keeping pressure on net interest margins in the near term. Banks had also drawn down surplus liquidity buffers to support lending, which could make deposit mobilisation at competitive rates critical going forward.

Asset quality trends have remained favourable, supported by lower incremental stress and reduced credit costs in recent years. While there was a slight uptick in slippages during the first nine months of 2025–26, levels remain under control. ICRA expects some increase in stress in segments such as MSMEs and unsecured retail loans due to global uncertainties, which could lead to a marginal rise in gross non-performing assets (GNPAs) to 2.0–2.1% in 2026–27.

The report also highlighted that private sector banks may continue to report relatively higher slippages than public sector banks due to greater exposure to unsecured and MSME portfolios. Even so, overall asset quality is expected to remain manageable, with only a limited increase in provisioning requirements.
Profitability is projected to remain healthy, though slightly lower than recent highs. Moderate operating expenses and manageable credit costs are expected to support earnings, even as competition for deposits weighs on margins in the near term. ICRA estimates return on assets (RoA) at 1.2–1.3% and return on equity (RoE) at 12.3–13.2% for 2026–27.

Overall, the agency has maintained a stable outlook on the banking sector, citing adequate capitalisation, manageable asset quality risks, and steady profitability, despite a more complex global macroeconomic environment.