Bk credit growth to ease to 12% in FY27

icra report

Domestic ratings agency Icra on Wednesday said bank credit growth is likely to moderate to under 12% in the current financial year from 15.6% achieved in 2025-26, largely due to the West Asia conflict and evolving interest rate dynamics.

The rating agency said that the continuing conflict would lead to an uptick in slippages from small businesses and unsecured loan exposures. Credit growth will moderate to 11%-11.7%, which will involve an expansion of up to ₹25 lakh crore to take the overall outstanding credit to around ₹237 lakh crore at the end of March 2027, it said.

Elevated global uncertainties, including the West Asia war and higher crude oil prices, will begin to reflect in macroeconomic and financial conditions and lead to the moderation in credit growth, Icra sector head Sachin Sachdeva said. Banks will be cautious while lending to vulnerable segments like MSMEs, which are likely to bear the brunt of supply chain disruptions, he said, pointing out that this has been a key growth driver in the recent past.

The agency said that deposit growth continued to lag credit growth in 2025-26, but saw some pickup towards the end of the fiscal year as banks started pushing to raise funds. The deposit mobilisation at finer rates remains a key challenge, it said, noting that net interest margins will continue to be under pressure as the cost of deposits is not expected to decrease materially. Lenders' ability to raise deposits at better rates would be important for sustainable credit growth and adequate profitability, the agency said, reminding that lenders opted to draw down on surplus liquidity buffers in 2025-26, such as reducing excess SLR holdings.