Indian Banks' Credit Surge Bolstered by Public Sector Gains and Regulatory Shifts

In FY27, Indian banks are poised for improved credit-to-deposit ratios and stable 14% credit growth. Driven by demand for working capital loans, regulatory changes, and increased corporate borrowings, this growth is supported by the RBI's incentive for foreign exchange inflows. Asset quality maintains health despite economic pressures.

Indian banks are projected to experience a favorable shift in their credit-to-deposit (CD) ratios by the fiscal year 2027, bolstered chiefly by gains in public sector banks. Credit growth is predicted to maintain a steady pace of approximately 14% year-on-year, according to a detailed report by Motilal Oswal Financial Services (MOSFL).

The systemic upswing in credit growth, reaching 17.7% as of June 15, 2026, has been largely propelled by robust demand for working capital loans amid rising input costs. A pivotal regulatory transition from the loan-to-deposit ratio (LDR) to liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) along with increased corporate borrowings following a rise in bond yields during FY27’s first quarter have significantly contributed to this figure.

MOSFL further notes the positive impact of the Reserve Bank of India's (RBI) exemption of FCNR(B) deposits, spanning three to five years, from cash reserve ratio (CRR) and statutory liquidity ratio (SLR) requirements. This move is poised to channel between USD 40-50 billion in foreign exchange inflows in FY27, bolstering bank business growth.