The robust growth in bank credit in 2026 has raised hopes of a credit revival. In September 2025, year-on-year growth in non-food bank credit crossed into double-digit territory and has since firmed up steadily. For the fortnight ending 15 July, credit growth crossed 17%—a rate not seen in two years.
The uptick can be attributed to a confluence of favourable factors, including lower lending rates, supportive tax policies and better systemic liquidity. It is early days yet: a few months of strong growth do not make a boom. But there are reasons to believe this could be the beginning of a lasting credit recovery.
Broad-based uptick
A 14-15% or higher growth in bank credit has historically been associated with strong economic growth. The reasoning is straightforward: since bank loans are made to fund economic activity, growth in bank lending should roughly match growth in nominal GDP.
In a good year, it is reasonable to assume that the economy will grow at a real rate of 7-8%, with inflation at 5-6%, resulting in a nominal growth rate of 12-14%. By this simple thumb rule, we could be at the start of a credit growth cycle. In fact, current credit growth is much higher than (which is at 9-10%), indicating strong underlying demand.
To be sure, there was a similar uptick in credit in 2022, largely driven by a surge in unsecured personal loans (mainly credit card debt) and loans to NBFCs. When the RBI tightened macroprudential norms on unsecured loans in 2023, that bubble burst, and credit growth fizzled out. This time, however, credit growth is broad-based across sectors, and there are no sector-specific bubbles.
Unusual balance
Across four sectors of deployment—agriculture, industry, services excluding (NBFCs), and retail—bank credit is growing at 12-15% year-on-year, while credit to NBFCs is growing at a higher 20-30%.
An analysis of sectoral credit trends from January 2009 to May 2026 shows that this sort of balanced growth is unusual. There were only five periods when total bank credit grew 14% or more for at least two quarters. But simultaneous credit growth of 14% or higher across sectors for a sustained period has occurred only once before, between October 2010 and August 2011.
That’s because credit has typically been driven by a select few sectors in each growth period. In 2022-23, unsecured loans led the credit rally. In the shallow 2018-19 cycle, loans to NBFCs drove more than a fifth of incremental credit as the IL&FS collapse pushed more NBFCs to take credit from commercial banks. Fortunately, so far in 2026, there is no concentration of credit growth at the sectoral level.
Capex pickup?
Credit to the industrial sector is growing across micro, medium and large enterprises. Bank credit to large industrial companies, which has been sluggish for over a decade, jumped to double-digit growth in the first two months of FY27.
RBI data on industry-wise deployment of bank credit shows that loans to chemicals, metals, ports, power, engineering goods, food processing, transport and construction sectors have picked up in the last six months. Together, these data points suggest a rise in corporate . This is corroborated by project data: in 2025-26, fresh investments announced increased by 31.9% to reach ₹58 trillion. Of these, 82% were mega projects of ₹1,000 crore or over.
Research from the State Bank of India mapping bank credit to project announcements showed that steel, power, cement, real estate, oil and gas, and textiles sectors accounted for 69% of projects in the first quarter of FY27. These were also among the top issuers of commercial paper and saw high credit growth, suggesting a growing requirement for short-term as well as long-term funds for corporate investment projects.
Retail shift
Retail credit—an important component of bank credit—is growing at 14-16%. That is a healthy rate of growth, but it is a comedown from the 20% plus credit growth rates that the sector was clocking in 2022 and 2023.
However, while the pace has moderated, the quality of personal loans has improved. Following the RBI’s clampdown on unsecured loans, the share of credit card debt and other personal loans—the two categories that most closely capture unsecured household credit—has declined significantly.
Housing loans, vehicle loans and education loans remain stable contributors to the growth in . The rising share of vehicle loans is at least partly due to the higher demand generated by GST rationalization. Gold loans contributed nearly a third of incremental personal loans in May 2026, reflecting the ability and willingness of households to monetize their gold holdings at a time of rising gold prices.
Overall, the shift towards more secured, collateral-backed lending makes for stronger asset quality.
The way forward
The question, of course, is whether growth momentum will be strong enough to sustain credit demand, and if bank credit will be able to support a growth cycle. There is some evidence for both.
First, banks are entering this cycle with a low level of non-performing assets, and corporate balance sheets are also healthy. Second, the inflow of FCNR deposits expected in the second quarter of FY27 will increase banks’ deposit base and replace costlier wholesale deposits, making it both easier and cheaper for them to lend.
Finally, there are signs of higher private sector participation in fresh investment projects. Private sector ownership of fresh projects increased from 61.2% in 2024-25 to 70.3% in 2025-26, and again to 71.7% in the first quarter of 2026-27.
The good news is that balanced credit growth and stronger private investment could reinforce each other to support a credit recovery. Whether it evolves into a durable credit cycle depends on the resilience of investment and the resolution of uncertainty around geopolitics, global trade, and the supply of key commodities.
The author is an independent writer in economics and finance.