Icra revises upwards FY26 bank credit growth estimate to 10.7 -11.5% from earlier 10.5%

Icra has revised upwards its FY26 bank credit growth estimate to 10.7 -11.5% from the earlier 10.5% driven by festive demand, GST reforms and liquidity boost by RBI. It maintained a stable outlook for the banking system with no significant capital requirements being anticipated.

It said banks remain cautious in lending to non-banking financial companies (NBFCs), and the corporate demand is yet to see any meaningful revival till now. However, it said gross non-performing assets of the banking system will increase by up to 2.3% after multiple years of a steady decline in the number.

It stated that the credit growth is expected to be driven by the retail and micro, small and medium enterprise (MSME) segments. Moreover, it said that the episodic shift of credit demand from large well-rated borrowers from capital markets to banks and vice versa remains opportunistic, and the sustainability of the same is yet to be clear.

Its sector head, Sachin Sachdeva, said ‘H1FY26 has seen incremental credit offtake of ₹10.1 lakh crore with a sizeable credit expansion taking place in September 2026, prompting us to revise upwards our full year credit offtake projection.’

Besides, after multiple quarters of challenges on the net interest margins front, Icra said the banking system is set to witness an improvement in the key metric influencing the core income. From a regulatory measures perspective, it said the transition to the expected credit loss (ECL) system of provisioning over five years is unlikely to be detrimental for lenders. It said estimating the impact on core capital levels to be less than 1.50%.