Banks have increasingly financed India’s commercial real estate sector, surpassing non-bank lenders despite regulatory risk adjustments, driven by a robust construction backdrop and sustained demand, raising questions about the sector’s future resilience.
Commercial real estate has emerged as an unlikely bright spot in India’s credit market, with banks taking an even larger role than non-bank lenders in new financing, according to Bank of Baroda Research. Between March and July 2026, banks supplied 111.3% of incremental credit to the sector, a figure that reflects a contraction in non-bank lending rather than a mathematical anomaly. Banks added ₹42,142 crore, while credit from non-banking financial companies fell by ₹4,284 crore.
The pattern underscores how aggressively banks have moved into a segment that carries a higher regulatory risk classification. The Reserve Bank of India has already raised risk weights on such lending to slow credit growth, yet bank exposure has continued to rise. As of July 2026, outstanding commercial real estate credit stood at ₹6.7 lakh crore with banks, compared with about ₹1 lakh crore for NBFCs, highlighting how much more heavily the market still relies on traditional lenders.
Bank of Baroda Research linked part of the momentum to a firmer construction backdrop. Gross value added in construction rose 7.7% in the first quarter of FY27, up from 5.2% in the same period a year earlier. Cement output also strengthened, increasing 9.9% in the April-July 2026 period, compared with 8.2% growth a year earlier. That improving activity helps explain why lenders are still comfortable extending more credit to developers and related projects.
The wider lending backdrop also favours banks. Business Today reported that banks accounted for 77.1% of all incremental credit between March and July 2026, with strong shares in industry, infrastructure, agriculture and trade. Even so, the commercial real estate segment stands out because lending is rising quickly despite tighter capital treatment. With office demand, organised development and construction activity all supporting the sector, the key question is how long banks can keep expanding exposure before the higher-risk tag begins to bite more visibly.
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