Indian banks face a moderating credit growth in the latter half of FY27, as a shift towards market-linked funding and global uncertainties dampen lending momentum despite recent robust loan disbursements, according to CareEdge Ratings.
India’s bank credit growth is set to ease in the second half of FY27 as the boost from an easy comparison base fades and more borrowers shift towards bonds and other market-linked funding, according to CareEdge Ratings. The firm said lending had accelerated to 19.3% year on year by July 31, the strongest pace since May 2024, but warned that such growth is unlikely to hold through the rest of the fiscal year.
The latest lending surge has been broad-based, helped by resilient retail borrowing, steady demand from micro, small and medium-sized enterprises, and continued appetite from services and infrastructure-related businesses. Banks have also extended healthy funding to non-banking financial companies. But CareEdge said part of the recent strength reflects a favourable base effect, alongside a sharp rise in fortnightly disbursements.
The turn towards capital markets is also relevant. Business Standard reported that Indian companies raised just over ₹1.07 trillion from the domestic bond market in April and May 2026, down almost 58% from a year earlier, as higher yields made debt issuance less attractive. LiveMint has separately reported that private placements of listed corporate bonds fell 9% in FY26, with participants expecting another subdued year for the market in FY27. ICRA, meanwhile, has projected that bank credit growth could slip below 12% in FY27 amid global uncertainty, including West Asia tensions and elevated crude prices.
Even so, the immediate funding backdrop for banks has improved. CareEdge said deposits have picked up, narrowing the gap with loan growth and nudging the loan-to-deposit ratio down to 81.9% from 82.7% a fortnight earlier. Banks are still leaning on certificates of deposit and commercial paper for short-term funding, but those instruments have become more expensive, suggesting funding costs remain under pressure. The broader picture, according to CareEdge, is that credit demand is still solid; the moderation is more likely to reflect normalisation than a collapse in lending appetite.
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