Retail Lending Drives Bank Credit Growth in India
India’s banking sector is poised for a robust credit growth trajectory, with retail lending emerging as the primary driver. According to the latest FICCI-IBA Bankers’ Survey, released on Sunday, the sector is expected to see credit growth in the 11–13% range in the first half of 2026. The survey, which gathered responses from 24 public, private, foreign, small finance, and cooperative banks, indicates a broadly constructive outlook on credit demand, bolstered by improving asset quality, stronger capital buffers, and resilient economic activity.
About 46% of the respondents anticipate non-food credit growth in the 11-13% range, while 29% foresee expansion above 13%. Only 8% expect growth below 9%, signaling limited downside risks despite global uncertainties. Retail lending is projected to remain the central pillar of credit expansion, with 52% of respondents expecting year-on-year growth above 13% and none forecasting growth below 9%. This underscores the strong and sustained momentum in the segment.
Credit demand from small and medium enterprises (SMEs) is also expected to be robust, with most banks predicting strong double-digit growth. This reflects improving business activity, greater formalization, and continued policy support for small enterprises. Sectorally, credit demand from services and retail segments is expected to anchor overall growth. Lending to services is likely to remain firmly in double-digit territory, supported by activity in real estate, financial services, logistics, and tourism-related sectors.
In contrast, industrial credit growth is expected to expand at a more measured pace, largely in the 9-13% range, pointing to a gradual recovery led by infrastructure spending and early signs of a revival in private capital expenditure. Within the industrial sector, demand for term loans is expected to be driven by infrastructure, real estate, automobiles, and pharmaceuticals, along with emerging areas such as data centers and defense. Working capital demand is likely to be led by sectors such as textiles, automobiles, pharmaceuticals, engineering goods, and food processing, reflecting linkages to trade cycles and operational requirements.
In the services sector, commercial real estate, NBFCs, and tourism-linked segments are expected to see strong credit demand. The survey also indicates a broad expectation of a status quo in policy rates over the next six months, suggesting that lenders view the current monetary stance as appropriately calibrated.
Artificial Intelligence (AI) is seen as the top disruptive force, with nearly half the respondents (48%) believing AI will dramatically transform credit underwriting, risk assessment, and collections. Competition and partnerships with fintech and Big Tech came second, followed by the rapid expansion of digital public infrastructure such as UPI, account aggregator, and CBDC (central bank digital currency).
On the strategic front, climate risk management and financial inclusion have become the top two priorities for 2026. Renewable energy financing is seen as the segment with the highest growth potential, with 83% of bankers picking it as the clear winner. However, challenges remain, with cybersecurity emerging as the single biggest risk, cited by 71% of respondents, far ahead of operational or credit risk.
In summary, the FICCI-IBA Bankers’ Survey paints a picture of a dynamic and resilient banking sector in India, with retail lending and SMEs leading the charge in credit growth. The sector is well-positioned to navigate the challenges ahead, supported by technological advancements and a focus on sustainable practices.
