Analysts, Rating Agencies Raise Credit Growth Outlook for H2 FY2026

Mumbai: Rating agencies and analysts expect credit expansion in India for 2025-2026 to be higher than their previous estimates on improved demand post the Goods and Services Tax (GST) rationalization, 100 basis points interest rate cuts by the RBI and liquidity boosts via the Cash Reserve Ratio cuts. Banks reported strong credit growth during the July-September 2025 earnings. On Wednesday, rating agency ICRA Ltd revised upwards its projection of credit expansion in FY2026 to Rs 19. 5-21 lakh crore (10. 7–11. 5 per cent) from its earlier estimate of Rs. 19-20. 5 lakh crore (10. 4-11. 3 per cent), driven by retail and micro, small and medium enterprise (MSME) segments. Other rating agencies including Crisil, India Ratings besides UBS and Jefferies too expect accelerated credit expansion in the second half of the current financial year. According to Sachin Sachdeva, a vice-president and sector head at ICRA Ltd, the first half of the current fiscal has seen incremental credit offtake of Rs 10. 1 lakh crore with a sizeable credit expansion taking place in September, prompting the agency to revise upwards the full year credit offtake projection. “The robust offtake in H1 was driven by partial upfronting of demand from Q3 FY2026 to Q2 FY2026 given the early onset of festive season, supported by GST cuts. As a result, the incremental credit offtake in H2 FY2026 (Rs. 9. 4-10. 9 trillion) is seen as flattish relative to the level in H1 FY2026, and around 9 per cent higher than the level in H2 FY2025 (Rs. 9. 3 trillion),” he said.

CS Setty, chairman SBI during the second quarter earnings, said that the banking sector would see one per cent additional credit growth for FY26 on RBI credit reforms and GST rate cuts. “We are also revising our credit growth guidance from 11 per cent to 12-14 per cent. " SBI Capital Markets in a report said stocking before the festive season supported a spike in MSME credit in September 2025, and record vehicle sales and huge consumption expenditure on consumer durables will aid in supporting growth Oct’25 onwards. The spike in gold prices is also providing impetus for gold loans by enhancing borrowing ability. “With the outlook for the rate trajectory remaining benign and hope of private large corporate capex still alive, we expect a sustainable pickup in credit growth in the medium term, with bank credit growth clocking 1. 3-1. 5x of nominal GDP growth in FY26,” said SBI Capital Markets. On the asset quality front, banks reported a slight uptick in fresh non-performing advances (NPA) generation rate in Q1 FY2026, particularly among private banks due to higher unsecured retail and MSME advances, although the same declined in Q2 FY2026. Barring the reversion seen in Q2 FY2026, the overall asset quality trends remain monitorable amid broader macro-economic developments and the fresh NPA generation rate for full FY2026 is expected to be slightly higher than that seen in FY2025. “Consequently, gross NPAs are forecasted to rise slightly in FY2026, but stay within a comfortable range (2. 1–2. 3 per cent). This will translate into a slight increase in credit costs (credit provisions/average advances) to around 0. 7 per cent in FY2026 for the sector from the significantly low levels of 0. 6 per cent seen in the recent past,” added ICRA.