Bank credit expansion up 30 bps in FY26 amid GST reforms: Report

New Delhi, Nov 12 Bank credit expansion in FY26 is projected to touch Rs 19.5-Rs 21 lakh crore -- up 30 bps from earlier estimates of Rs 19-Rs 20.5 lakh crore, a report said on Wednesday.

ICRA revised upwards its projection due to improved demand after the Goods and Service Tax (GST) rationalisation, and liquidity boosts via the cash reserve ratio (CRR) cuts.

The Net Interest Margins (NIMs) appear to have bottomed out in H1FY26 and slight recovery is anticipated in H2 FY26, according to the report.

“The outlook for banks for FY26 remains stable, with no significant capital requirements anticipated. Both public and private banks are expected to maintain comfortable solvency and asset quality metrics, though a slight rise in credit cost is anticipated in H2 FY26," said Sachin Sachdeva, Vice President and Sector Head, ICRA.

While the banks remain cautious in lending to non-banking financial companies (NBFCs) and the corporate demand is yet to see any meaningful revival, the growth is expected to be driven by the retail and micro, small and medium enterprise (MSME) segments.

The robust credit offtake in H1 was driven by partial upfronting of demand from Q3 FY26 to Q2 FY26 given the early onset of festive season, supported by GST cuts

The report forecasted a stable trajectory for the Indian banking sector in the ongoing fiscal year, as banks navigate growth revival, amid evolving asset quality and significant regulatory changes.

On the asset quality front, there had been a slight uptick in fresh non-performing advances (NPA) generation rate in Q1 FY26, particularly among private banks due to higher unsecured retail and MSME advances, although the same declined in Q2 FY26.

The gross NPAs are forecasted to rise slightly in FY2026, but stay within a comfortable range of 2.1–2.3 per cent.

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