New Delhi : The GST rate cut credit growth is expected to boost lending by banks and NBFCs in FY2026, according to a report by ICRA released on Wednesday. Analysts project incremental bank credit to reach Rs.19-20.5 lakh crore in FY2026, up from Rs.18 lakh crore in FY2025, representing year-on-year (YoY) growth of 10.4-11.3 per cent for banks, compared to 10.9 per cent last year.
NBFC credit (excluding infrastructure-focused entities) is set to expand at 15-17 per cent in FY2026, slightly lower than 17 per cent in FY2025. Although banks extended only Rs.3.9 lakh crore in credit during the first five months of FY2026 compared to Rs.5.1 lakh crore last year, GST rate cuts aimed at spurring domestic demand should accelerate credit expansion.
ICRA expects that the upcoming CRR cut and GST rationalisation will push credit growth toward the higher end of the projected ranges—10.4-11.3 per cent for banks and 15-17 per cent for NBFCs. Gradual repricing of deposits will strengthen banks’ competitive position relative to debt capital markets.
Abundant liquidity and a lower credit-to-deposit ratio should further support lending growth. ICRA Senior Vice President Anil Gupta said, “Asset quality stress in retail and MSME segments slowed growth for private banks and NBFCs. Improved economic activity post-GST cuts will increase lenders’ growth appetite and support credit expansion.”
Lenders remain exposed to loan quality risks and uncertainties arising from evolving geopolitical conditions. Loans to MSMEs and unsecured personal loans account for 17 per cent of banks’ total non-food credit of Rs.184 lakh crore as of July 2025, while small business and unsecured personal loans form about 34 per cent of NBFC credit of Rs.35 lakh crore as of March 2025.
Although macroeconomic headwinds could reduce borrowers’ ability to service loans, lower funding costs will support margins and earnings. ICRA maintains a stable outlook for banks and NBFCs (except microfinance, where the outlook is negative) due to sufficient capital buffers and favorable credit growth factors.
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