According to Anand Rathi’s report, due to the government’s manufacturing policies, industrial credit can become the new growth driver of the banking sector. After a decade of slowdown, rapid growth is being seen in industrial lending, which is a good sign for banks.
New Delhi [भारत]July 5 (ANI): Industrial credit could become the next growth driver for the Indian banking sector as government measures to boost manufacturing accelerate after a decade of modest performance, according to a recent research report by Anand Rathi.
Industrial credit will become the new growth driver
In this report of the banking sector, it has been emphasized that after a long period of slow growth, industrial lending has strengthened and is showing momentum again. The annual growth of industrial credit, which accounts for about 21 percent of total bank credit, has increased from about 7 percent in April 2025 to about 15 percent in April 2026.
The report said, “This segment was a key growth driver of banking credit during FY 2004-14, growing at a compound annual growth rate (CAGR) of over 20 per cent. However, it recorded a modest CAGR of only 4 per cent between FY 2014 and 2025, as Indian corporates went through a long deleveraging cycle. During this period, industrial credit as a percentage of industrial GDP stood at around had declined from 79 per cent to around 50 per cent. With the government promoting manufacturing in India through subsidies and credit schemes, we believe industrial credit could be the new growth driver for Indian banks.”
Credit growth picks up, deposits expected to increase
“The banking sector is showing healthy trends with strong credit growth, stable asset quality and return ratios,” the brokerage firm said. It further said that credit growth has increased from 9.5 percent in June 2025 to about 17.7 percent on an annual basis in May 2026. It also noted that “Industrial credit has shown considerable momentum and momentum in recent quarters.”
According to the report, “Credit growth should remain at 14-15 percent.” Also, “The new FCNR deposit rules will boost deposit growth by 150-200bps, which should lead to 14-15 per cent credit growth in FY2027. Industrial credit could be the new demand driver given several government policies to promote manufacturing in India.”
asset quality of banks strong
The report also said that banks are keeping their balance sheets healthy. On the financial stability front, the report described asset quality as “healthy”. The gross slippage ratio – which measures the rate at which good loans turn into bad loans – improved by nearly 9 basis points (bps) quarter-on-quarter and 35 bps year-on-year to 0.97 per cent in Q4FY26.
Great performance of PSBs
Public sector banks (PSBs) emerged as top performers in this category. The report said PSBs remained “best-in-class”, with gross slippage remaining below the 1 per cent mark and net slippage remaining close to zero.
Positive outlook for the sector
The report maintains a positive outlook for the sector, estimating steady growth and return on equity (RoE) of 14-15 per cent. “Notably, valuations also appear reasonable given these trends,” the report added. (ANI)
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