New Delhi [India], September 2 : Bank credit growth is expected to moderate in the second half of FY27 as the favourable base effect normalises and large corporates and NBFCs increasingly tap bond markets, according to an Anand Rathi Institutional report.
However, it also noted that bank credit growth will be supported by strong underlying demand, improved liquidity and easier access to market-based funding in the near term, but the pace of expansion may moderate in the second half of FY27.
It stated "the recent acceleration may moderate...... limiting the pace of bank-credit expansion in H2 FY27"
The credit offtake remained broad-based in July 2026, with industrial and services lending leading the acceleration. The broad-based growth indicates that stronger business and retail demand is translating into higher bank credit offtake.
Industrial credit grew 20.0 per cent in July 2026, with engineering, gems and jewellery, petroleum and vehicles among the segments leading the growth.
Services credit grew 22.9 per cent, supported by lending to NBFCs, trade and commercial real estate, the report said.
Credit growth was also sustained in the retail and agriculture segments, with personal loans growing 16.2 per cent and agriculture credit expanding 17.0 per cent.
According to the report, the broad-based acceleration in credit points towards strengthening demand for loans from both businesses and retail borrowers.
The report also pointed to an improvement in banks' funding conditions, with deposit mobilisation strengthening during the period.
Deposit growth accelerated to 15.4 per cent, narrowing the gap between credit and deposit growth. The credit-deposit (C/D) ratio also moderated to 81.9 per cent as incremental deposits grew faster than credit.
Foreign Currency Non-Resident (FCNR) (B) inflows provided additional support to banks' funding position, according to the report.
The improvement in deposits and funding conditions could provide banks with greater support to meet credit demand, even as the pace of credit growth is expected to moderate in the second half of the financial year.
The report said the July 2026 sectoral credit data points to broad-based strengthening in credit demand, led by industrial and services lending.
Stronger corporate, micro, small and medium enterprise (MSME) and infrastructure credit, along with sustained retail demand, suggests that improving economic activity is translating into stronger bank credit offtake, it said.
The report also noted that competition for quality corporate borrowers could limit the scope for improvement in banks' margins. However, it said broad-based credit growth remains encouraging for the domestic investment and consumption cycle in H2 FY27.
Overall, the report expects the credit environment to remain constructive, supported by demand, liquidity and funding conditions, while the normalisation of the base effect and greater use of bond financing are likely to temper the pace of bank-credit growth in the second half of FY27.