Despite an 18% rise in project loan sanctions for private sector projects in FY26, India’s broader credit cycle shows little sign of acceleration, with corporate hesitance and sector concentration continuing to constrain a capex-led recovery.
India’s private investment cycle is still not feeding through into a broader credit upswing, even though project loan sanctions rose sharply in the latest fiscal year. Kotak Institutional Equities said fresh sanctions for private-sector projects increased 18% year on year in FY26, but the expansion has not yet produced a matching pickup in loan demand or utilisation across the banking system. Infrastructure, especially power, continues to absorb a large share of funding, underscoring how heavily the investment pipeline remains concentrated in a few sectors.
The Reserve Bank of India’s September bulletin projected that private-sector capital expenditure will climb to ₹3.2 trillion in FY27, up from ₹2.6 trillion in FY26. Business Standard reported that the total cost of sanctioned projects hit a record ₹4.4 trillion in FY26, with infrastructure leading the way. Even so, fresh project loan sanctions from banks and financial institutions remained close to 3% of total loans, unchanged from the previous year, while pending disbursements were still around 2%, suggesting that much of the pipeline has yet to be converted into actual borrowing and spending.
That gap between project announcements and credit growth fits a wider pattern in India’s private investment landscape. LiveMint reported that private investment as a share of gross domestic product slipped to 10.3% in FY25 from 10.9% in FY23, despite stronger corporate profits and a rise in project announcements. The paper said many companies have preferred to hold on to cash rather than commit to new greenfield spending, even as policy support such as tax cuts and production-linked incentive schemes aims to encourage capital formation.
At the same time, a separate pool of funding is emerging outside traditional bank lending. EY’s private credit reports show India’s private credit market reached $3.4 billion in the second half of 2025 and $3.5 billion in the first half of 2026, with domestic funds providing most of the capital in the latter period. That suggests some financing demand is being met through private credit rather than bank balance sheets, but the overall picture remains one of a cautious corporate investment cycle rather than a full-fledged capex-led credit boom. Government spending is also set to stay supportive, with Finance Minister Nirmala Sitharaman announcing a record ₹12.22 lakh crore capital outlay for FY27, equal to 4.4% of GDP, which should help sustain infrastructure activity even if private borrowing remains subdued.
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