Is Bank Credit Expansion Set to Rise by 30 bps in FY26 Amid GST Reforms?
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Synopsis
Discover how bank credit expansion is expected to rise in FY26, driven by GST reforms and liquidity enhancements. This report sheds light on the banking sector's stable outlook, asset quality, and the projected growth in retail and MSME segments. Stay informed about the evolving landscape of Indian banking!
Key Takeaways
- Bank credit expansion anticipated to reach Rs 19.5-Rs 21 lakh crore in FY26.
- 30 bps increase from previous estimates.
- Driven by GST reforms and liquidity boosts through CRR cuts.
- Stable outlook for banks with manageable asset quality.
- Growth expected from retail and MSME sectors.
New Delhi, Nov 12 (NationPress) The expansion of bank credit in FY26 is anticipated to reach Rs 19.5-Rs 21 lakh crore -- an increase of 30 bps from previous estimates of Rs 19-Rs 20.5 lakh crore, according to a report released on Wednesday.
ICRA has raised its projections due to a surge in demand following the Goods and Services Tax (GST) rationalization and liquidity enhancements through cash reserve ratio (CRR) reductions.
The Net Interest Margins (NIMs) are believed to have stabilized in H1FY26, with a modest recovery expected in H2 FY26, as indicated in the report.
“The outlook for banks in FY26 remains secure, with no major capital demands anticipated. Both public and private banks are likely to uphold stable solvency and asset quality metrics, although a slight increase in credit costs is foreseen in H2 FY26,” stated Sachin Sachdeva, Vice President and Sector Head at ICRA.
Even though banks are being cautious in lending to non-banking financial companies (NBFCs) and corporate demand has yet to show significant improvement, growth is projected to be fueled by the retail and micro, small and medium enterprise (MSME) sectors.
The strong credit draw in H1 was attributed to the early festive season, which prompted a partial upfronting of demand from Q3 FY26 to Q2 FY26, bolstered by GST reductions.
The report predicts a steady path for the Indian banking landscape throughout the current fiscal year, as banks strive for growth amid changing asset quality and important regulatory shifts.
Regarding asset quality, there was a slight rise in the generation rate of new non-performing advances (NPA) in Q1 FY26, particularly among private banks due to higher unsecured retail and MSME advances, although this trend decreased in Q2 FY26.
The gross NPAs are expected to see a slight uptick in FY2026, but will remain within a manageable range of 2.1–2.3 percent.
Point of View
I affirm that the banking sector's trajectory is crucial for the nation’s economic health. The anticipated rise in bank credit expansion and the stability in asset quality reflect a positive outlook. It’s essential for stakeholders to navigate these changes wisely, ensuring robust growth that benefits all sectors.
NationPress
13/11/2025
Frequently Asked Questions
What is the expected bank credit expansion for FY26?
The expected bank credit expansion for FY26 is projected to reach Rs 19.5-Rs 21 lakh crore.
What factors are driving the increase in bank credit?
The increase in bank credit is primarily driven by GST rationalization and liquidity improvements through CRR cuts.
How are net interest margins expected to change?
Net interest margins are anticipated to have bottomed out in H1FY26, with a slight recovery expected in H2 FY26.
What is the outlook for banks in FY26?
The outlook for banks in FY26 remains stable, with no major capital requirements expected, and comfortable solvency and asset quality metrics projected.
What sectors are expected to contribute to credit growth?
The retail and micro, small and medium enterprise (MSME) segments are expected to drive credit growth.
