Banks' credit growth to inch up to 12% in FY26: Crisil

Domestic credit rating agency Crisil, in its latest report, has said that banks' credit growth will accelerate in the second half of the fiscal year (H2FY26) and inch up to 12% in FY26. It said retail credit will drive growth in loan books for banks in FY26, and corporate loans growth will be slower in the fiscal year.

The agency flagged some concerns for the industry, including a decline in households' contribution to deposit accretion, which can lead to issues over deposit stability, and lending to small businesses, which can impact asset quality. It also flagged some potential concerns on the deposit stability, pointing out that the share of household contributions to the deposit base has reduced to 60% from 64% over the last five years.

It said deposit growth, a crucial factor for sustainable credit growth, is seen as adequate for the expected uptick in bank credit, aided by the RBI's measures to enhance systemic liquidity, including a four-phased cash reserve ratio reduction and revision in liquidity coverage ratio norms.

From an asset quality perspective, the agency said the gross non-performing assets ratio will go up to 2.3-2.5% by the end of FY26, but added that this will be very low when compared with the historical highs. It, however, flagged the small businesses segment, especially loans under Rs 10 lakh, as something to watch out for from an asset quality standpoint. It said if there is no revision on the tariffs front, some US or export-dependent small businesses may also report stress.

As per the latest data, the credit to the large industry slowed down to 0.8%, while credit growth to MSME strengthened to 19%. On the other hand, credit to the housing loan category stood at 9.7% for the same period.