IndianEconomy

CRISIL sees strong 12–13% credit growth ahead

It is anticipated that the expansion of credit will positively impact the banking sector in India. The credit rating agency CRISIL Ratings has predicted a 12–13% increase in bank lending for the fiscal year 2025–2026 (FY26) due to the renewed optimism in the Indian economy. Numerous factors, including reduced interest rates, tax breaks, increased consumption, and loosened regulations, all support this growth forecast.
Compared to the expected 11–11.5% increase in FY25, the projected growth is an improvement, suggesting that India’s financial ecosystem may be about to enter a more expanding phase.

One important catalyst is regulatory support.

The Reserve Bank of India’s (RBI) regulatory relaxation is one of the main factors contributing to this positive outlook. Credit prospects have improved dramatically, especially with the rollback of the 25 percentage point risk weight hike on bank loans to specific Non-Banking Financial Companies (NBFCs), which goes into effect on April 1, 2025. It is anticipated that this regulatory change will increase banks’ capital adequacy and increase lending to NBFCs, which are essential in helping last-mile borrowers.

Increased Consumption as a Result of Tax Benefits

New tax benefits were implemented in the Union Budget 2025–2026, which mostly benefited middle-class and salaried individuals. It is anticipated that these incentives will enhance consumer consumption, which will raise demand for retail loans—particularly home, auto, and personal loans. As per CRISIL’s projection, retail credit—which accounts for approximately 31% of overall bank lending—is anticipated to grow by 13–14% in the fiscal year 2026, marking an increase from the 12% growth expected in FY2025.
Increased discretionary income from lower personal income taxes also helps customers become more creditworthy and encourages them to take up loans for expensive things like homes, cars, and schooling.

Interest rates and monetary policy

A key contributor to the optimistic credit outlook is the Reserve Bank of India’s decision to lower the repo rate by 25 basis points, reducing it to 6%. Monetary accommodation is shown by the central bank’s softer attitude, which lowers borrowing costs for both individuals and companies.
In general, lower interest rates make it more affordable for consumers to get credit and for firms to fund capital expenditures, which increases demand for loans. This rate reduction follows a protracted period of rate increases meant to curb inflation, indicating a change in the central bank’s emphasis to promoting growth.

Sectoral Outlook and Corporate Lending

Corporate credit, which makes up roughly 41% of all bank credit, is predicted to expand by 9–10% in FY26, up from about 8% in FY25, while retail loans are likely to grow consistently. The credit rating agency observes a recovery in private sector investments, especially in capital-intensive industries that significantly rely on institutional financing, like steel, cement, aluminum, and infrastructure.
Increased bank funding is also anticipated to help NBFCs. The RBI’s loosened risk weights will allow banks to fund NBFCs more freely, promoting overall credit expansion after a halt brought on by stricter regulations and increased risk assessments.

Lending to MSME and Agriculture

With the support of government incentives like loan guarantee programs and priority sector lending mandates, as well as strong demand, credit growth to MSMEs is predicted to stay strong at 16–17%.
Depending mostly on monsoon performance, the agriculture sector may have loan growth of 11–12% in the interim. Due to the need for farm inputs, mechanization, and rural consumption, the demand for rural loans will continue to rise if monsoons are typical and crop production stays constant.

Growth of Deposits: A Juggling Act

Mobilizing deposits is one of the main obstacles banks may encounter in maintaining credit development. Deposit growth has been comparatively moderate in FY25 because of restricted systemic liquidity, which is necessary to enable credit expansion.
However, the RBI’s recent liquidity initiatives are starting to relieve some of the pressure on the banking system. As interest rates on deposits progressively rise, deposit growth is anticipated to catch up. Banks can lend sustainably without affecting their credit-deposit ratio or jeopardizing their financial stability if they have a strong deposit base.

Obstacles & Hazards to Come

Even while the outlook is mostly favorable, some domestic and international dangers could nevertheless put doubt on it:
• Uncertainty in the world economy, particularly if developed markets experience financial instability or slowdowns.
• Geopolitical conflicts that might impact oil prices and raise India’s inflation rate.
• Risks associated with credit quality, particularly in the unsecured retail lending market.
• A slower-than-expected increase in deposits, which would limit banks’ capacity to lend.
Notwithstanding these reservations, the Indian economy’s structural strength, together with proactive regulatory actions and financial assistance, instills optimism that the banking industry would continue to grow steadily.

Conclusion

The 12–13% loan growth forecast by CRISIL for FY26 is encouraging for the Indian banking sector and the overall economy. The industry appears well-positioned to lead the next phase of economic expansion because to accommodative monetary policy, retail lending fueled by spending, regulatory flexibility, and a recovery in corporate credit. But sustaining this upward trend will require ongoing attention, particularly in the areas of deposit growth and credit quality.

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