Business EconomyPosted at: Oct 27 2026 7:15PM

Mumbai, Oct 27 (UNI) Rating agency ICRA expects bank credit growth to remain healthy at 15.1-15.9 per cent in FY2026-27, with incremental credit flow projected at Rs 32.3-33.8 lakh crore, despite the onset of the interest rate tightening cycle.
Credit growth is projected to moderate from 15.9 per cent in FY2026 and 21.4 per cent as of September 30, 2026, reflecting a high base and changes in reporting dates. Retail, micro, small and medium enterprises (MSMEs), and a recovery in corporate credit are expected to support lending momentum.
Retail-focused non-banking financial companies (NBFCs) are projected to record assets under management (AUM) growth of 19-21 per cent in FY2027, compared with 22 per cent in FY2026. Housing finance companies are expected to post growth of 14-16 per cent.
ICRA said surplus banking system liquidity, supported by foreign currency non-resident deposit inflows and the Reserve Bank of India's concessional swap facility, would help contain funding costs despite rising interest rates. Elevated bond yields are also making bank borrowing more attractive for corporates.
The agency expects bank profitability to remain largely stable, supported by the ability to reprice floating-rate loans, while credit costs are likely to rise marginally but remain benign.
However, prolonged geopolitical tensions in West Asia, potential oil price shocks, supply-chain disruptions and inflationary pressures pose risks to asset quality, particularly among MSMEs and unsecured retail borrowers.
For NBFCs, gold loans, improving disbursements in microfinance and unsecured lending, and continued demand for housing finance are expected to support growth. Higher interest rates and inflation could nevertheless put pressure on borrower cash flows and lenders' funding costs.
ICRA expects some increase in loan slippages across banks and NBFCs, although any deterioration in headline asset quality is likely to remain contained, provided credit flows to underlying borrowers remain healthy.
The agency noted that the impact of higher rates on lender margins would vary across asset classes, with floating-rate loans allowing faster transmission of funding costs, while relatively higher margins and shorter tenures could provide buffers for fixed-rate products.
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