India’s Bank Credit Growth Projected to Reach 14.5% in FY27 Amid Global Risks

MUMBAI — India’s banking sector is poised for resilient growth in FY27, with credit offtake projected between 13% and 14.5%. This momentum is supported by robust bank balance sheets, steady retail demand, and a continued push for infrastructure-led lending.

While credit growth reached 14.5% in late 2025—up from 11.8% the previous year—analysts warn that external factors like geopolitical tensions and crude prices exceeding $100 per barrel could tighten lending standards and increase borrowing costs for vulnerable sectors.

Retail and Infrastructure as Growth Engines

Retail lending remains the primary driver of the credit cycle, though the composition of portfolios is shifting toward secured assets.

• Housing & Auto Dominance: Mortgages continue to represent 50% of personal loans, while vehicle finance is seeing a surge, particularly in the three-wheeler segment.
• Unsecured Credit Slowdown: Following regulatory tightening, growth in unsecured loans has dropped significantly to 7%, as banks pivot toward safer bets.
• Gold Loan Surge: Lending against gold has skyrocketed by 127.6%, fueled by rising gold prices and a reclassification of agricultural gold loans.

Corporate Capex and Funding Hurdles

Corporate credit demand is expected to improve gradually as private capital expenditure (capex) revives alongside sustained public investment.

• Industrial Demand: Sectors like logistics, aviation, and chemicals may see increased working capital requirements due to fluctuating energy costs.
• Deposit Pressures: Banks face a tightening funding environment as deposit growth slows and competition increases from alternative investment avenues.
• Digital Efficiency: The widespread adoption of AI and digitalization is expected to offset some operational pressures by improving credit delivery and efficiency.

Risk Outlook

Despite a positive trajectory, the outlook remains sensitive to imported inflation. High energy costs could impact the profit margins of MSMEs and energy-intensive industries, potentially leading to higher risk premiums and a recalibration of bank portfolios.