Crisil predicts that bank credit will increase by 100–200 basis points year over year to 12–13% this fiscal year. Here are three explanations for

As lending to NBFCs, one of the largest sub-segments of corporate credit (~18 percent) and a key contributor to growth prior to fiscal 2025, improves with the rollback of higher risk weights, credit growth in the corporate sector, which accounts for approximately 41% of bank loans, is expected to be 9–10%, compared with ~8% estimated for fiscal 2025, according to Subha Sri Narayanan, Director, Crisil Ratings. However, because banks will be more selective moving forward, this expansion in lending to NBFCs may still be below historical levels.

The downstream demand from the continuous infrastructure buildout, which should continue to propel investments in the cement, primary steel, and aluminum sectors, will also help corporate credit growth. However, the continuous tariff-related uncertainty are still observable for a large number of other sectors. Generally speaking, businesses are supposed to exercise caution while using leverage.

The possible impact of the corporate bond market replacing bank loans for higher-rated borrowers, given the quicker re-pricing there as they factor in impending rate reduction, will be worth monitoring as well, according to Crisil, even if lower interest rates will be advantageous.

Retail loans, which make up approximately 31% of bank lending, are predicted to increase by 100–200 basis points to 13–14% this fiscal year from roughly 12% in fiscal 2025. Home loans continue to make up 45–50% of retail credit, and growth in this sector should be aided by increased affordability under a reduced interest rate regime. Even while banks will continue to exercise caution when it comes to unsecured lending, sustained demand and improved performance of the more recent portfolio as a result of stricter underwriting standards may cause growth to rise up a bit in the second half of fiscal 2026 from its low base.

With the help of government initiatives, the MSME segment’s (16 percent of total credit) growth is expected to remain stable at 16–17 percent this fiscal year, as opposed to roughly 15 percent in fiscal 2025. The industry has become more formalized and digitalized, and data has become more accessible, which has allowed banks to improve their MSME lending strategies and better serve the significant demand in this market.

According to Crisil, the tariffs will have a modest to low impact on the 11 major sectors. The impact is anticipated to be lower for two sectors (textiles and cellphones) and higher for one (diamond polishing) in comparison to its prior assessment. It further stated that the growth of agricultural credit will remain dependent on the monsoon and is anticipated to be rangebound at 11–12% this fiscal year. All things considered, obtaining deposits will continue to be essential to fostering the expansion of credit.

Although the difference between credit and deposit growth has decreased to less than 100 basis points in recent months, Vani Ojasvi, Associate Director at Crisil Ratings, stated that this is due to a slowdown on the asset side. Tight systemic liquidity has limited deposit growth, but by the end of March 2025, liquidity turned to surplus and has stayed that way in April. As long as the RBI guarantees sufficient liquidity, the situation should improve. This should encourage the expansion of deposits, which will boost the growth of credit.