Key Highlights
- Credit expansion in the banking sector is forecast at 12‑13 % for FY26, marginally above the 11‑11.5 % expected for FY25.
- Regulatory easing—particularly the rollback of heightened risk‑weighting for NBFC exposures and a one‑year deferment of the Liquidity Coverage Ratio—underpins the outlook.
- Tax reductions are anticipated to lift household consumption, thereby fuelling loan demand.
- Softer policy rates are expected to stimulate borrowing across corporate and retail segments.
- Deposit growth, projected at roughly 10 % in FY25, will be pivotal for sustaining the credit trajectory.
Detailed Insights
CRISIL Ratings projects that Indian banks will achieve a credit growth rate of 12‑13 % in FY26, outpacing the 11‑11.5 % pace anticipated for FY25. The upward revision is anchored in a confluence of macro‑economic and regulatory factors. The Reserve Bank of India’s decision to reverse a 25‑percentage‑point increase in risk‑weights for loans to selected non‑banking financial companies (NBFCs) effective 1 April 2025 is expected to revive credit flow to these entities, which had decelerated in FY25. Simultaneously, the postponement of stricter Liquidity Coverage Ratio (LCR) requirements by one year frees up liquidity that banks can redeploy toward lending. Complementary fiscal measures, notably recent tax cuts, are projected to raise disposable income and consumption, thereby expanding credit demand. Moreover, a modest easing of interest rates should lower borrowing costs, encouraging both corporate and consumer loan uptake. However, the durability of this expansion hinges on deposit mobilisation, with FY25 deposit growth estimated at 10.3 %.
Key Concepts
- Risk‑Weight Rollback: The reduction of capital charge percentages applied to bank loans extended to certain NBFCs, intended to improve banks’ risk‑adjusted return on capital.
- Liquidity Coverage Ratio (LCR): A regulatory metric that requires banks to hold high‑quality liquid assets sufficient to survive a 30‑day stress scenario; its deferment temporarily relaxes this buffer requirement.
- NBFC Exposure: The portion of a bank’s loan portfolio allocated to non‑banking financial companies, which has exhibited volatile growth patterns in recent years.
- Deposit‑Driven Credit Expansion: The concept that growth in bank deposits supplies the funding base necessary for extending new loans.