Credit growth: Scanning the strength of the signal

Research evidence excerpt

FICC Research

EM Strategy

10 August 2026

India

Credit growth: Scanning the

strength of the signal

Overall credit growth in the economy has been surprisingly

strong, led largely by bank credit. Lower lending rates, higher

costs and resilient demand explain this improvement. Nonbank credit has been steady too, with rising share of foreign

sources. NBFC credit growth is driven by the retail sector

India’s credit cycle has strengthened and broadened, but banks are doing most of the

heavy lifting. Sectoral data points to a combination of stronger activity and higher

nominal working-capital requirements leading the upswing. Non-bank financing is robust

too, but its composition has shifted towards foreign borrowing. In case of NBFCs, retail

credit is driving overall growth.

• Sharp and durable improvement in bank credit has been driven by industry and

services, complementing sustained growth in secured personal lending. Within industry,

large firms and capital-intensive sectors have made the highest contribution.

• Lower lending rates, higher inflation and improved real economic activity explain the

steady improvement in bank credit growth. Vehicles and electronics sectors show a

clear combination of higher credit and industrial production. In petroleum, chemicals,

basic metals, and gems and jewellery, higher producer prices appear to explain a larger

part of the rise in credit demand.

• The non-bank environment is less uniformly strong. Aggregate flows have remained

broadly stable, but the mix has shifted from domestic towards foreign sources over the

last year. ECBs and short-term international credit have strengthened, with on-lending

accounting for a larger share of ECB use.

• The NBFC recovery is highly concentrated. Retail credit comprises the largest portfolio

share with strongest growth among the major sectors. Agriculture has accelerated from

a small base and services remain firm, but industrial credit has steadily decelerated.

• Overall credit demand overstates the improvement in output, accentuated by higher

costs. As deposit mobilisation by the banking sector improves on the back of FCNR

…