Bank Credit Growth Seen Slowing to 11-11.7% in FY27: ICRA

Bank Credit Growth is likely to fall below 12% in FY27, compared with 15.9% in FY26, as per estimates by ICRA.  

Loan Growth is seen at around 11-11.7%. The moderation follows a period of relatively strong expansion and is indicative of a slower pace of demand as well as tighter system liquidity. 

Global Factors and Trade Risks 

Developments in West Asia remain a key factor. Disruptions around the Strait of Hormuz have raised concerns over energy supply and trade routes. The region accounts for roughly 14-20% of India’s trade, leaving it exposed to volatility in that corridor. 

Higher crude oil prices may push up import costs and add to inflation. This could affect consumption patterns and reduce demand for credit across sectors over the coming year. 

Impact on Key Borrower Segments 

Micro, small and medium enterprises are expected to face pressure from supply chain disruptions and higher input costs. These segments had supported credit growth in recent years, but lenders may turn more selective in extending fresh loans. 

Asset quality trends, which had improved in recent years, may see some movement. Stress is expected in MSME and unsecured retail portfolios.  

Private sector banks could see relatively higher slippages due to their exposure, although overall levels are expected to remain contained. 

Margins, Deposits and Liquidity 

Net interest margins are expected to remain under pressure as competition for deposits continues. Deposit growth picked up towards the end of FY26, but still lagged credit growth, keeping funding costs elevated. 

Banks also used surplus liquidity buffers, including excess statutory liquidity ratio holdings, to support lending. This has led to a moderation in liquidity coverage ratios. Provisioning requirements may increase slightly, raising credit costs. 

Read More: SASCI Fund Utilisation Turns Uneven Across States as Allocations Rise: SBI! 

Conclusion 

Credit growth in FY27 is expected to slow, with external risks and funding constraints shaping the outlook. While some pressure is visible across segments, overall banking system conditions are expected to remain stable. 

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