Indian Bank Credit Growth to Moderate by FY27
Indian banking credit growth is projected to slow in FY27 due to higher interest rates and tightening liquidity despite strong demand from retail and corporate borrowers.
Indian bank credit growth is expected to moderate in FY27, driven by higher interest rates, tightening liquidity, and a stretched base. According to Anand Rathi, the projected deceleration is more statistical than demand-led, as borrowing remains healthy across retail customers, businesses, and micro, small and medium enterprises. Recent data indicates strong year-on-year growth in industrial credit at 23.4% and personal and agricultural loans at 19.5%.
To support the rupee, the Reserve Bank of India has moved system liquidity toward neutral through Variable Rate Reverse Repo auctions and Open Market Operation sales. This environment may lead corporates to favor bank funding over market borrowing as bond yields rise.
Parallel analysis from Jefferies Group suggests deposit growth will accelerate to 16% in FY27, fueled by foreign currency non-resident bank deposits, before moderating to 11-12% in the following two years. The sector maintains a sound foundation with a net non-performing asset ratio of 0.4% in FY26, the lowest in two decades. Jefferies also notes a strategic shift in the industry, where investments in technology and AI are now taking precedence over physical branch expansion. Future risks include potential credit cost increases starting in FY28 and rising expenses at public sector banks due to upcoming wage settlements.
