Banking Sector Predicts Growth Amid Festive Boost and Regulatory Shifts

Icra has revised its FY26 bank credit growth estimate upwards to 10.7-11.5%, driven by festive demand and GST reforms. Though gross NPAs may increase, the overall outlook remains stable. Growth is expected in retail and MSME sectors, with banks cautious on non-banking financial companies.

Icra announced a revision in its FY26 bank credit growth projection, which is now expected to climb to 10.7-11.5%, up from an earlier estimate of 10.5%. This upward adjustment is driven by festive demand, GST reforms, and the liquidity boost provided by the Reserve Bank of India.

Despite the projected increase in credit growth, the rating agency cautioned about a potential rise in gross non-performing assets (NPAs) by up to 2.3% after years of steady decline. Nevertheless, a stable outlook for the banking system has been maintained, with no substantial capital requirements anticipated.

The growth is largely anticipated from retail and MSME segments. Though corporate demand remains subdued, the strategic shift in credit demand between banks and capital markets continues to play a key role. Regulatory transitions, such as expected credit loss provisioning, are deemed non-detrimental to core capital levels, while capital buffers remain resilient.

(With inputs from agencies.)