Icra sees credit growth picking up from second half of FY26 on GST rate cuts, falling deposit costs

MUMBAI: Credit rating agency Icra Ratings has said bank credit is likely gain traction from the second half of the fiscal, buoyed by the likely consumption boost arising from the GST rate cuts, and falling deposit costs. In Q1, credit growth stood at a low 10.5%, while this was 10.9% in FY25 and 16.3% in FY24.

If its forecast turns out to be true, it sees bank credit clipping at 10.4-11.3% or in absolute terms adding Rs 19-20.5 trillion in incremental disbursements for the fiscal, up from Rs 18 trillion in FY25, on the back of easing funding costs and growth supporting policy measures, despite some asset quality stress, Anil Gupta, co-group head, financial sector ratings at the agency told reporters here Wednesday.

On the other hand, the agency expects non-banking finance companies to lend 15-17% more this fiscal, compared to 17% in FY25 and 24% in FY24, despite a slower start primarily due to the troubles in the microfinance space, AM Karthik, co-group head financial sector ratings at the agency, said.

Karthik said during the first five months of FY26, incremental bank credit to non-banks stood at a much lower Rs 3.9 trillion, down from Rs 5.1 trillion in the same period last year.

The recent GST rate cuts and the reduction in the cash reserve ratio would help revive domestic demand, boosting credit growth across both sectors, Gupta said.

On the asset quality front, they said there is rising stress level in retail and small business loan segments, impacting both banks and non-banks. However, with economic activity expected to pick up following policy changes, lending appetite is likely to improve, Gupta said.