ICRA upgrades bank credit growth estimates on GST reforms
With improved demand in retail and micro, small and medium enterprise (MSME) segments after Goods and Services Tax (GST) rationalisation, rating agency ICRA said banks in India are expected to lend an additional Rs 50,000 crore, taking total credit expansion to Rs 19.5–21 trillion in the current financial year (FY26). The credit growth would be 10.7–11.5 per cent, against the previous estimate of 10.4–11.3 per cent in FY26.
Why is corporate credit still lagging?
Corporate demand is yet to see any meaningful revival. The episodic shift of credit demand from large, well-rated borrowers between capital markets and banks remains opportunistic, ICRA noted. The sustainability of that shift remains to be seen, given the expectations of another rate cut by the Monetary Policy Committee (MPC), it added.
What drove higher loan offtake in the first half of FY26?
Referring to loan offtake, vice president and sector head, ICRA, said, “The first half of FY26 has seen incremental credit offtake of Rs 10.1 trillion, with sizeable expansion taking place in September 2026. This has prompted us to revise upwards our full-year credit offtake projection.”
The robust offtake in the first half was driven by partial upfronting of demand from the third quarter (Q3 FY26) to the second quarter (Q2 FY26), given the early onset of the festive season supported by GST cuts. As a result, the incremental credit offtake in the second half (H2 FY26), at Rs 9.4–10.9 trillion, is expected to be flattish relative to the level in the first half (H1 FY26), and about nine per cent higher than in H2 FY25 (Rs 9.3 trillion), ICRA said.
How resilient is the banking sector’s capital position?
The outlook for banks remains stable, with no significant capital requirements anticipated. Banks are well placed to absorb the impact of changes related to capital charge for credit risk and expected credit loss (ECL), supported by resilient capital buffers.
The overall impact on core capital ratios is estimated to be below 150 basis points because of ECL changes, which will be partially moderated by a favourable impact on account of capital charge adjustments, ICRA said.
Will asset quality and credit costs remain stable?
Both public and private banks are expected to maintain comfortable solvency and asset quality metrics, though a slight rise in credit cost is anticipated in the second half (H2 FY26). The fresh non-performing asset (NPA) generation rate for the full year is expected to be slightly higher than that seen in FY25.
Consequently, gross NPAs are forecast to rise marginally in FY26 but stay within a comfortable range of 2.1–2.3 per cent. This would translate into a modest increase in credit costs to about 0.7 per cent in FY26 for the sector, from 0.6 per cent seen in the recent past, ICRA added.
