Bankers Predict Strong Loan Demand Recovery Despite Initial Dip in FY26

The Reserve Bank of India’s latest Bank Lending Survey reveals a temporary dip in loan demand across major sectors in Q1 FY26. However, bankers remain optimistic about a rebound in upcoming quarters, anticipating rises in sectors like manufacturing, retail, and agriculture. The survey assesses credit conditions and projects increased demand.

Loan demand witnessed a seasonal slowdown across major sectors in the first quarter of FY26, as reported by the Reserve Bank of India's latest Bank Lending Survey (BLS). Despite this, banks remain optimistic about an impending recovery in subsequent quarters, according to the survey conducted among senior loan officers of major scheduled commercial banks examining credit conditions during Q1 2025-26 and projecting expectations for the remaining quarters of the fiscal year.

The survey, which encompassed 30 major scheduled commercial banks covering over 90% of the country's total bank credit, showed a marked softening in loan demand across key sectors during the April to June period. The net response rate for overall loan demand in Q1 dropped to 37.5% from 42.6% the previous quarter. Significant declines were observed in agriculture, infrastructure, and retail/personal loan sentiment.

However, optimism persists among bankers. They forecast a net response increase to 41.1% in Q2 FY26, with expected gains in sectors such as manufacturing (43.1%), retail/personal loans (42.6%), and agriculture (36.7%). Projections for Q3 and Q4 FY26 see net response rates rising to 41.1% and 48.1% respectively. Overall, the terms and conditions for loans remained accommodative with a 12.5% net response, indicating continued ease in credit availability, particularly in the retail/personal loan, services, and manufacturing sectors.

(With inputs from agencies.)