Bank Credit Grows 7% in FY26, Retail Loans Lead as MSME Lending Doubles

The report from Crisil Intelligence said secured retail lending -- notably housing and gold loans -- accounted for a larger share of incremental credit. It said retail credit accounted for about one‑third of gross banking credit.

Unsecured loan growth moderated after the Reserve Bank of India's risk weight circular and tighter underwriting practices, it said.

"Incremental credit to Micro, Small, and Medium Enterprises (MSMEs) doubled, supported by public sector banks (PSBs), whose asset quality and overall share in outstanding credit improved," the report noted.

The share of incremental credit towards MSME loans increased to 32.5 per cent from 17.7 per cent a year earlier, and the proportion of MSMEs in outstanding credit increased by 174 basis points, led by robust disbursements from public sector banks.

PSBs also led credit growth in rural and semi‑urban areas, reflecting an uptick in rural demand.

The research firm said high‑ticket industrial loans contracted, indicating subdued capital expenditure, while working capital demand remained steady and credit to non‑bank finance companies showed signs of revival after a regulatory slowdown.

Further, it said that PSBs' asset quality improved, with gross non‑performing assets decreasing to 2.5 per cent in September 2025 from 2.8 per cent in March 2025.

A recent report from SBI Mutual Fund said that bank credit growth is projected at 13-14 per cent in FY27. Bank credit rose from 9 per cent in May to 11.4 per cent by November 2025, with aggregate credit likely to grow by 10.5-11 per cent in FY26.

Household credit is expected to outpace corporate, the fund house said, adding that segments reliant on credit-driven demand and premiumization trends should outperform in the near term.

- IANS