India’s banking sector to sustain credit growth in FY27 despite the West Asia crisis tempering sentiment, says DEA’s April 2026 report. While loan demand has moderated, underlying financial stability indicators remain strong and supportive.
India’s banking sector is expected to sustain credit growth momentum in the coming quarters, even as the prevailing crisis in West Asia has tempered banker sentiment for June quarter of the Financial Year 2026-27, according to the Department of Economic Affairs’ monthly economic review – April 2026 .
While loan demand and ease of terms have moderated, underlying financial stability indicators remain strong, supporting a positive outlook for FY27, the report stated.
Credit Growth Momentum
The trajectory of scheduled commercial bank’s (SCB) credit has shown a consistent upward trend since May 2025, with growth accelerating to 17.1 per cent year-on-year as of March 31, 2026, up from 11 per cent a year ago.
Sector-Wise Performance
The expansion has been broad-based, with non-food credit rising 14.3 per cent YoY in February 2026, compared with 11.1 per cent in the same period of FY25. Among sectors, services led non-food credit growth at 16.3 per cent in February 2026, up from 11.7 per cent a year earlier. The surge was driven by sharp increases in shipping credit at 41.7 per cent and computer software at 39.7 per cent, compared with 8.1 per cent and 22.3 per cent respectively in February 2025.
Within industry, credit to the MSME sector remained robust at 27.5 per cent, with micro and small enterprises recording a 30.4 per cent jump, up from 9.6 per cent in February 2025.
Flow of Resources to Commercial Sector
The total flow of resources to the commercial sector also strengthened, reaching Rs 44.7 lakh crore as of March 31, 2026, reflecting 38.2 per cent YoY growth. This was largely driven by non-food bank credit, which rose to Rs 29.2 lakh crore from Rs 18.1 lakh crore a year ago. Non-bank sources also contributed significantly, with corporate bond issuances up 123 per cent and external commercial borrowings by non-financial entities rising 154.1 per cent YoY.
Banker Sentiment and Geopolitical Risks
However, the RBI’s Bank Lending Survey for Q4 FY26 indicates that the West Asia crisis has weighed on banker confidence. The net response for sector-wise loan demand fell from 50 per cent in Q4 FY26 to 28.6 per cent in Q1 FY27, while optimism on loan terms and conditions declined from 22.2 per cent to 18.5 per cent.
Despite this, bankers expect loan demand to remain positive and terms to stay easy for Q2 and Q3 FY27. The report noted that the West Asia situation is not expected to affect financial stability, with system-wide indicators for capital adequacy, liquidity, asset quality and profitability remaining robust.
NBFCs Show Resilience
NBFCs also showed sound financial metrics, with total CRAR at 25.59 per cent and Tier I CRAR at 23.72 per cent as of December 2025, both well above regulatory requirements. The GNPA ratio improved to 2.14 per cent from 2.52 per cent a year ago, underscoring resilience in the non-banking segment.
The data suggests that while geopolitical risks have introduced near-term caution, India’s credit ecosystem remains on a solid footing, with diversified growth across sectors and adequate buffers to support continued expansion in FY27.
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