Bank Credit Growth Seen Slowing Below 12 Per Cent In FY27: ICRA

The domestic rating agency ICRA (Investment Information and Credit Rating Agency of India) has reported that it expects bank credit growth to decline below 12 per cent in the ongoing financial year, as compared to 15.6 per cent in FY26. This moderation is likely to occur due to geopolitical uncertainties and fluctuations in interest rates.

The agency has forecasted an increase in credit of about 11-11.7 per cent in FY27, meaning lending is projected to increase up to Rs 25 lakh crore, and the overall outstanding bank credit would be about Rs 237 lakh crore by the end of March 2027.

Global Uncertainties To Impact Lending

ICRA has indicated that the current geopolitical tensions in West Asia and the increasing cost of crude oil are bound to affect the economic conditions. These could influence borrowing demand and also the willingness of the banks to lend, resulting in slower growth in credit.

Pressure May be Exerted on MSMEs, Unsecured Loans

The agency has observed that micro, small and medium enterprises (MSMEs) will most probably get hit by supply chain disruptions associated with global tensions. This segment has helped in credit growth in recent years; however, banks will now be picky in lending.

Unsecured retail loans might also experience an increase in stress. ICRA has indicated that slippages in these segments can rise even more, which means that more loans may turn overdue or non-performing.

The relatively high stress in the public sector banks is already being reflected in the private sector banks that are more exposed to MSMEs and unsecured borrowings.

Deposit Growth Continues to be a Challenge

The report has pointed out that the deposit growth continued to lag credit growth in FY26. It improved, however, a bit towards the end of the year as banks stepped up efforts to raise funds.

Nonetheless, mobilisation of deposits at reduced costs is a challenge. The deposit cost will not decrease substantially, and this will continue to mount pressure on the net interest margins of banks, stated ICRA.

Banks' ability to raise deposits at better rates will be important to support lending growth and maintain profitability. The agency has also reported that banks had decreased surplus liquidity buffers in FY26, such as excess statutory liquidity ratio reserves, to assist credit growth.

Asset Quality may See Slight Increase in Stress

ICRA anticipates a slight rise in stress in FY27 on asset quality. An increase in gross non-performing advances may occur marginally due to higher slippages by MSMEs and unsecured loans.

Nevertheless, overall asset quality is expected to remain stable. The agency has estimated that in FY27, gross non-performing advances would lie between 2.0 and 2.1 per cent. This estimation is based on the assumption of an average crude oil price of 85 per barrel and an economic growth of 6.5 per cent.

Profitability to Stay Stable

Bank profitability, according to ICRA, will likely fall slightly in FY27, but overall, it will rise eventually to be stable, backed by moderate operating costs and manageable credit costs, despite the pressure on margins.

The agency has maintained a stable projection of the banking sector in FY26-27. It has been stated that adequate capitalisation, reasonable risk and steady profitability will be able to support the sector even when the credit growth is low.

Overall, the report indicates that while the banking sector remains stable, global risks and funding challenges are likely to influence lending trends in FY27.