New Delhi [India], November 12 : Rating agency ICRA has revised upwards its projection of credit expansion in India for 2025-26 from its previous estimate, noting that improved demand post the recent Goods and Services Tax (GST) rationalisation, and liquidity boosts via the cash reserve ratio (CRR) cuts would support offtake.
The rating agency has raised its credit offtake projection to Rs 19.5-21.0 trillion from its earlier estimate of Rs 19.0-20.5 trillion.
While raising the projection, the rating agency has asserted that, although banks remain cautious in lending to non-banking financial companies (NBFCs) and corporate demand has yet to show any meaningful revival, growth is expected to be driven by the retail and micro, small, and medium enterprise (MSME) segments.
"The episodic shift of credit demand from large, well-rated borrowers from capital markets to banks and vice versa remains opportunistic, and the sustainability of that remains to be seen, given the expectations of another rate cut by the Monetary Policy Committee (MPC)," ICRA noted on Wednesday.
ICRA forecasts a "stable trajectory" for 2025-26 for the Indian banking sector, as banks navigate growth revival, amid evolving asset quality and significant regulatory changes.
Sachin Sachdeva, Vice President and Sector Head at ICRA, said that the first half of 2025-26 has seen an incremental credit offtake of Rs 10.1 trillion, with a sizeable credit expansion taking place in September 2026, prompting the rating agency to revise its full-year credit offtake projection upwards.
"The robust offtake in H1 was driven by partial upfronting of demand from Q3 FY2026 to Q2 FY2026 given the early onset of festive season, supported by GST cuts," Sachdeva added.
As a result, the incremental credit offtake in the second half of 2025-26 is expected to be relatively flat compared to the level in the first half of 2025-26, and 9 per cent higher than the level in the second half of 2024-25.
On the asset quality front, ICRA noted a slight uptick in the fresh non-performing advances (NPA) generation rate in Q1 2025-26, particularly among private banks, due to higher unsecured retail and MSME advances. However, this trend declined in Q2 2025-26.
Barring the reversion seen in Q2 2025-26, the overall asset quality trends remain monitorable amid broader macro-economic developments and the fresh NPA generation rate for the full 2025-26 is expected to be slightly higher than that seen in 2024-25.
Consequently, gross NPAs are forecasted to rise slightly in 2025-26, but stay within a comfortable range (2.1-2.3 per cent).
"ICRA's outlook for banks for 2025-26 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 2025-26," added Sachdeva.
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