Notwithstanding the expected improvement of economic activities and outlook on credit growth, ICRA remains vigilant about activa quality.
The credit growth of banks and non-banks will be supported by GST interest rates, even if the credit costs are expected to increase for these lenders, according to the ICRA rating agency.
The agency estimated the incremental credit stream of banks to rise to £ 19.0-20.5 Lakh crore in FY2026 of £ 18.0 Lakh crore in FY2025, which translates into one year-on-year (yo-y) credit growth of 10.4-11.3 percent for the current tax-current tax authorities FY2025 and 16.3 percent in FY2024.
The NBFC credit (excluding the infrastructure-oriented entities) is expected to expand by 15-17 percent in the current tax, compared to 17 percent in FY2025 and 24 percent in FY2024.
ICRA said that although the evolving macroeconomic trends are not expected to have a direct, first-order impact on the lenders, their target credit segments would be influenced by the total demand weakness or income shocks that arise from these developments.
Transport operators coupled to a clothing sector, which depends, would, for example, be confronted with a lower capacity use. Likewise, employees of these units would have liquidity problems to deliver their existing debt (microfinance, personal loans, home loans) because of the income shock.
Referring to the pace of incremental bank credit growth in the current year lagged behind at £ 3.9 Lakh crore for 5 million (five months) FY2026 compared to £ 5.1 lakh crore for the previous year, ICRA argued that the recent GST rates aimed at the EXPORTS and the export of those who are one of those who are one of those who are one of those who are one of those who are playing with the one for the one for the one for the one for the one for the person’s prospects and the exports of those who are the purposes of those who are the one -for -the -house. The exports for the exports would support and compensate the export of exports in the banks and the NBFCs in the almost -Terminis.
With the upcoming CRR (Kas Reserve ratio) and GST rationalization, the agency provides on the higher side of the estimated range of 10.4-11.3 percent for banks and 15-17 percent for NBFCs.
Furthermore, the gradual downward repetition of the deposit base will probably improve the competitive position of banks in relation to the debt capital markets for the rest of the year.
In addition, the relaxation of credit / deposit ratio and abundant liquidity in the banking system will also be supportive factors for credit growth.
Anil Gupta, Senior Vice President & Co-Group Head, ICRA, said: “Active quality stress in retail and MSME segments resulted in slower growth for banks in the private sector and NBFCs. With improvement of economic activity after reducing the savings on economic activity”
Loan quality risks
Notwithstanding the expected improvement of economic activities and outlook on credit growth, ICRA remains vigilant about activa quality.
The agency noted that lenders are confronted with the risks of the loan quality and are susceptible to the uncertainties that arise from the developing geopolitical conditions.
Loans to MSMEs and uncovered personal loans accounted for 17 percent of the total non-food credit of £ 184 Lakh Crore for the banks from July 2025. Loans to small companies, and uncovered personal and consumption teases, stands on approximately 34 percent of the total NBFC credit of £ 35 Lakh Axis of March 2025.
The problems with the quality of the assets in the shop segment in the case of banks, the agency said: “Overflow of stress continues, MFI (microfinancing institute)/personal loans to unclotted MSME; non -strict to secure segments such as commercial vehicles, used cars and micro -paping (Loan to real estate), affordable housing lens, affordable housesvesting.”
In the case of NBFC, ICRA noted that, except for mortgages, credit costs gradually rise in other segments. It noted that stress levels remain raised in MFIs; Improvement expects in the second half of FY2026.
AM Karthik, Senior Vice President & Co-Group Head, ICRA, expects that the credit costs of banks and NBFCs will rise by nearly 13 basic points (BPS) and 30 BPS, Vis A Vis, the previous fiscal, with the impact pronounced more in the non-housing segments.
While this headwind remains, the calming impact of the reduction costs of funds will support the margins and the overall income for the lenders.
ICRA has maintained stable prospects for banks and non-banks (except microfinance, where the outlook is negative) in general, because of the aforementioned factors and their current capital buffers, which are sufficient to absorb unforeseen losses.
The second-order impact of the macro trends on the lender profile remains monitorable, which could be visible from Q3 (October-December) of the current financial year, in case the growth remains lukewarm and unfolds the adverse impact of rates.
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Published on September 10, 2025
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