Banks, NBFCs Loan Growth To Stay Healthy In FY 27 Despite Onset Of Rate Tightening Cycle Says ICRA

Mumbai: Despite the onset of rate tightening cycle, credit growth of banks will stay healthy at 15.5 per cent driven by retail, micro, small and medium enterprises (MSMEs) along with continued uptick in corporate credit as bank lending remains attractive compared with the bond market, rating agency ICRA said on Tuesday.

The agency expects credit flow to rise to Rs 32.3-33.8 lakh crore in 2026-27 from Rs 29.2 lakh crore in 2025-26 translating in a year on year credit growth of 15.1-15.9 per cent for banks in the current fiscal, compared to 15.9 per cent in 2025-26 and 10.9 per cent in 2024-25.

In addition, sizable foreign currency non-resident (FCNR(B)) inflows aided by the Reserve Bank of India’s (RBI) concessional swap facility has led to surplus liquidity in the banking sector. This provides headroom for credit growth while containing funding costs by reducing reliance on expensive wholesale deposits. With a high share of variable rate loans, lending rates should reprice faster as rates rise, the rating agency said.

Similarly, the growth outlook for retail-focused non-banking financial companies (NBFCs) remains healthy, with assets under management (AUM) expected to expand by 19-21 per cent in 2026-27 compared with 22 per cent in 2025-26 and 18 per cent in 2024-25. The growth will be supported by sustained momentum in gold loans amid increasing participation and expansion by lenders in the segment, as well as a pick-up in disbursements in the microfinance and unsecured segments.

Ashish Modani, Senior Vice President & Group Head, ICRA said, “ICRA does not forecast higher interest rates or inflation to translate immediately into a broad-based deterioration in headline asset quality, particularly as long as credit flows from banks to NBFCs, and onward to underlying borrowers, remain healthy. Nonetheless, some pressure in the softer delinquency buckets cannot be ruled out.” The prolonged West Asia conflict remains a source of uncertainty from an asset quality perspective, particularly for Indian MSMEs, due to potential oil shocks, supply chain disruptions and inflationary pressure. The loans to MSMEs and unsecured personal credit account for around 17 per cent of the overall non-food bank credit of Rs 223 lakh crore as of August 2026.

However, higher rates, inflation and geopolitical uncertainty could put pressure on cash flows and funding costs for lenders. Monsoon concerns are also driving more calibrated lending in vulnerable segments and geographies.