Bank Credit Growth Expected to Ease to 12% in FY27 Due to Geopolitical Tensions

Wednesday, April 22, 2026

A domestic credit rating agency forecasts that bank credit growth in India will slow to between 11% and 11.7% in the 2026-27 financial year, down from 15.6% the previous year, due to geopolitical tensions in West Asia and changing interest rate conditions. This slowdown poses risks for sectors like MSMEs, which have driven recent credit growth, while banks face challenges in mobilizing deposits to maintain lending and profitability.

Bank credit growth in India is expected to slow to below 12% in the current financial year, a domestic credit rating agency indicated on Wednesday. This projection marks a decline from the 15.6% growth recorded in 2025-26, with geopolitical tensions in West Asia and shifting interest rate dynamics cited as primary factors behind the moderation.

The agency forecast that credit growth will range between 11% and 11.7%, translating to an expansion of up to ₹25 lakh crore. This would bring the total outstanding bank credit to approximately ₹237 lakh crore by the end of March 2027. An ongoing conflict in West Asia is anticipated to contribute to a rise in loan slippages, particularly among small businesses and unsecured lending segments.

Sachin Sachdeva, head of the agency's sector research, noted that the heightened global uncertainties—including the West Asia war and elevated crude oil prices—are expected to weigh on macroeconomic and financial conditions, thereby affecting credit growth. He highlighted banks’ heightened caution in extending loans to vulnerable sectors such as micro, small, and medium enterprises (MSMEs), which are likely to face disruptions in supply chains and increased repayment risks. MSMEs have been a significant driver of credit expansion in recent years.

On the deposit front, the agency observed that deposit growth lagged credit growth during 2025-26 but improved somewhat toward the fiscal year-end as banks intensified efforts to mobilize funds. Nonetheless, securing deposits at competitive rates remains a challenge, and net interest margins are expected to remain under pressure given that deposit costs are unlikely to ease substantially. The agency emphasized that lenders' ability to attract deposits at favorable rates will be crucial for sustaining credit growth and maintaining profitability.

Furthermore, the agency pointed out that banks had drawn down on surplus liquidity buffers during 2025-26, including reducing holdings of surplus Statutory Liquidity Ratio (SLR) securities, to support credit expansion. This strategy may be harder to replicate under current conditions, underscoring the importance of improved deposit mobilization in the forthcoming period.