India’s bank credit growth is expected to be around 13% this fiscal year (FY27), driven by robust growth in the micro, small and medium enterprise (MSME) and retail sectors. Another major factor driving this growth is corporates' continued preference for bank credit over bond issuance amid the prevailing interest-rate differential.

According to a report by Crisil Ratings published on April 7, support will also come from increased working capital intensity among Indian companies, even as a revival in private-sector capital expenditure (capex) could be delayed.

Overall, credit growth will be a tad slower than the estimate of about 14% for fiscal 2026. While tailwinds from the regulatory and government measures announced in fiscal 2026 should sustain and support growth, the extent of benefit will taper over time and the impact will be seen across sub-segments: corporate, MSME and retail.

The credit growth trajectory can also be impacted by the duration and intensity of the Middle East conflict and its effect on the macroeconomic environment. Further, acceleration in deposit growth will be important, given the recent increase in gap with credit growth.

Subha Sri Narayanan, director at Crisil Ratings, expects credit growth in the corporate sector, which is about 36% of domestic bank credit, around 9-10%, in line with about 10% in fiscal 2026.

According to Crisil, the corporate bond yields began dropping in January 2025, with the trend reversing after July and by March 2026, yields rose past the January 2025 level. Meanwhile, the weighted average lending rate (WALR) of banks dropped almost 90 basis points (bps) between January 2025 and March 2026, it added.

A result of the aforementioned trend was that corporates, especially in non-banking financial companies (NBFCs), opted for bank credit. Crisil expects the trend of corporate bond interest rates being higher than bank WALRs to continue in FY27 as well, which will aid demand for bank credit.

Newer avenues such as acquisition financing, now permitted for banks by the regulator, should also support credit growth.

Crisil expects the ongoing conflict in the Middle East to have a dual impact on wholesale credit growth. Firstly, the uncertainties created by the conflict could weigh on a broad-based revival in private sector capex. Secondly, supply-chain disruptions and higher input prices would increase demand for working capital debt in the short term.

The latter would be particularly noticeable in the MSME segment, which makes up about 19% of domestic bank credit. This segment has been, and will remain, the fastest growing portfolio for the banking sector, though growth will moderate from the 24-25% level seen in fiscal 2026 as the country’s economic growth tempers.

Despite these challenges, Crisil expects growth in the fiscal 2027 to be upwards of 22% in the base case for two reasons. One, government initiatives such as the three-tier stimulus for MSMEs announced in the Union Budget and doubling of collateral-free loan limits should enhance funding access, liquidity, and transaction settlement for MSMEs. Furthermore, increasing robustness of the operational and digital ecosystem associated with MSMEs is resulting in better data access, which, in turn, boosts the ability of banks to assess risk and cater to this segment.

Nevertheless, increased caution by banks in lending to export-oriented MSMEs focused on the Middle East region, or those dependent on crude oil and liquefied natural gas (LNG), could slow the growth in the near term, Crisil said.

Retail loans, which are about 33% of bank lending, will continue to grow at a reasonable clip, at approximately 14%, in fiscal 2027. While this will be lower than the second half of fiscal 2026, which benefitted from the immediate impact of regulatory stimuli such as softer interest rates and tax reliefs, it will be only a marginal moderation compared with fiscal 2026 overall.

Banks continue to do well in the home loans segment, their largest business. Crisil believes they will continue to expand the share in the prime segment given competitive pricing.

The auto loan segment should also continue to grow due to the rationalisation of the goods and services tax last fiscal. Unsecured loans could see moderately higher growth in fiscal 2027 as asset quality of newer originations has improved.

However, prolonged conflict in the Middle East could lead to inflationary pressures and the resultant higher interest rates may put pressure on retail consumption demand.

Agricultural credit growth is expected to be range-bound at 10-11% in fiscal 2027 with the expectation of normal monsoons.

Crisil added that a lot will depend on deposit growth, a crucial support for credit growth.

The difference between credit growth and deposit growth, which had nearly vanished in the first quarter of FY26, has again been increasing with accelerating credit growth, standing at 300 bps as of March 15, 2026.

Vani Ojasvi, associate director, Crisil Ratings, said that the steps such as the phased cut in the cash reserve ratio have led to liquidity for banks, lending support during the recent slow deposit growth.

Banks are also using their excess liquidity ratio buffers and dipping into certificates of deposit (CDs) to fund credit growth. Ojasvi said that against an overall increase in deposit growth of 10.8% year-on-year as of March 15, 2026, growth in CDs was approximately 27%, although on a much smaller base.

In addition, reducing levels of excess SLR will constrain the flexibility of banks going forward, making deposit growth even more crucial. In this environment, competition for deposits will continue to remain severe, keeping deposit rates high. As a result, banks could opt for alternative funding sources such as bonds and securitisation, Crisil said.