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According to Crisil Intelligence, gross bank credit rose 7 per cent in the first eight months of FY26, taking outstanding loans to Rs 1,95,273 billion by the end of November. The expansion has come even as banks tighten norms for riskier loans and navigate a difficult global backdrop, indicating that domestic credit demand remains intact, even without aggressive balance-sheet expansion.

Retail lending continued to account for roughly one-third of total bank credit, with housing and gold loans emerging as the main drivers of incremental growth. Borrowers have clearly preferred secured products, where interest rates are relatively stable and risk perceptions lower. Unsecured loans, on the other hand, have slowed. After the Reserve Bank of India raised risk weights and banks tightened credit checks, growth in personal loans and credit cards cooled - a sign that lenders are prioritising balance-sheet strength over rapid expansion.

One of the more encouraging trends this year has been the rebound in lending to micro, small and medium enterprises. Incremental credit to MSMEs doubled compared with the same period last year, supported largely by public sector banks.

Lending to MSMEs has picked up sharply, with their share in fresh credit rising to 32.5 per cent, up from 17.7 per cent a year ago. Their share in overall outstanding loans has also gone up, pointing to stronger disbursements and a return of confidence among smaller businesses after a long phase of caution. This suggests that credit growth is becoming more evenly spread, rather than being driven only by urban consumption.

On the other hand, large-ticket industrial loans continued to shrink, highlighting the still-muted pace of private capital expenditure. While companies have maintained working capital borrowing, fresh investment-led demand remains limited. Credit to non-bank finance companies, which had slowed after regulatory tightening, showed early signs of recovery - indicating that wholesale lending channels may be stabilising.

Banks have also reported a steady improvement in asset quality. Gross non-performing assets declined to 2.5 per cent in September 2025, down from 2.8 per cent in March, easing worries about fresh stress and allowing lenders some headroom to expand carefully. Going ahead, lending activity is expected to pick up at a measured pace. SBI Mutual Fund expects bank credit to grow by 13–14 per cent in FY27, led largely by household borrowing rather than corporate loans. In the near term, consumption-linked segments and credit-driven demand are likely to do better, while a stronger rebound in corporate lending will depend on a revival in private investment.

Ankit Kumar is a Senior Sub Editor at Zee Business, where he writes and edits across economy, international affairs, politics, climate policy, financial markets, business, perso