India’s banking sector remains optimistic about sustaining strong credit growth in the second half of 2026, supported by resilient demand from retail borrowers, small and medium enterprises (SMEs), industry and services, according to the 22nd edition of the FICCI-IBA Bankers’ Survey.

The survey, covering the July–December 2026 period, included 22 banks spanning public sector banks, private sector banks and foreign banks. Collectively, the participating institutions account for more than three-fourths of India’s total banking assets.

The findings indicate that nearly three-fourths of respondents expect non-food credit to grow at a year-on-year rate in the mid-teens or higher over the next six months. Almost all participating banks anticipate at least double-digit growth.

However, slower deposit growth relative to credit demand, geopolitical uncertainty and supply-chain disruptions remain key challenges as lenders prepare for continued expansion into FY2027.

Retail and SME Lending Lead Credit Growth Expectations

Retail and SME lending have emerged as the clearest drivers of credit demand, with more than four-fifths of respondents expecting robust double-digit year-on-year growth in both segments.

Almost all participating banks anticipate double-digit growth in SME credit, reflecting the segment’s importance in the broader lending outlook.

Private sector banks display the strongest optimism, with nearly nine in ten respondents expecting non-food credit growth in the mid-teens or higher. Among public sector banks, nearly three-fourths share this expectation.

Foreign banks present a more measured outlook, with all respondents anticipating credit growth at a lower double-digit pace, reflecting their more focused exposure to selected market segments.

Credit demand from industry is also expected to remain healthy, while more than three-fourths of respondents expect services-sector lending to expand at a robust double-digit rate. Half of the respondents anticipate services credit growth in the mid-teens or higher.

Agriculture and allied activities are also expected to contribute to lending growth, although expectations vary more widely across participating banks.

Infrastructure and Engineering Drive Industrial Credit Demand

Within the industrial sector, infrastructure is expected to lead demand for term loans, followed by engineering goods, automobiles and auto components, electronics, and metals, iron and steel.

The expected demand for working capital financing reflects a different set of business requirements. Auto and auto components, along with petroleum, coal and fuel products, are identified as the leading sources of demand in this category.

Food processing, chemicals, and metals, iron and steel are also expected to contribute to working capital requirements.

The distinction highlights the two dimensions of industrial borrowing: long-term financing for capacity creation and infrastructure development, and short-term credit to support operating cycles and day-to-day business requirements.

NBFCs, Tourism and Trade Support Services Credit

Services-sector lending is expected to benefit from demand across financial services, tourism, hospitality, real estate and trade.

Non-banking financial companies (NBFCs) are expected to lead term loan demand within the services segment, followed by tourism, hotels and restaurants, and commercial real estate.

For working capital financing, wholesale and retail trade stands out as the dominant source of expected demand. Tourism, hotels and restaurants, along with transport operators, are also expected to contribute.

These trends suggest that credit demand is likely to remain broad-based across both capital-intensive businesses and service providers requiring financing for operational expansion.

Deposit Mobilisation Emerges as a Major Constraint

Despite the positive credit outlook, banks face structural challenges in funding their lending activity.

Slower deposit growth relative to credit demand was identified as the biggest constraint to sustaining healthy credit expansion, cited by approximately two-thirds of respondents. The concern was particularly pronounced among public sector banks.

The findings underscore the importance of strengthening deposit mobilisation and building a stable funding base as lending demand continues to grow.

Economic and geopolitical uncertainties also remain significant concerns, particularly for private and foreign banks.

The survey further notes that measures intended to improve foreign-currency deposit mobilisation, including flexibility for Foreign Currency Non-Resident (Bank) or FCNR(B) deposits, could provide additional support to banks in managing funding and liquidity requirements.

The findings reflect conditions prevailing at the time the survey was conducted.

Geopolitical Risks Cloud Private Investment Outlook

While banks anticipate strong credit demand, geopolitical risks and supply-chain disruptions remain major obstacles to a broader recovery in private-sector capital expenditure.

Around three-fifths of respondents identified these factors as the biggest impediment to a sustained revival in private investment.

Global economic uncertainty emerged as another significant concern, followed by a weaker demand outlook.

The findings suggest that greater visibility over the domestic and global operating environment will be important for businesses considering new investments. Even with credit available, uncertainty surrounding supply chains, trade and demand could delay capital expenditure decisions.

For banks, a sustained revival in private investment would create opportunities to expand lending to infrastructure, manufacturing and other industrial segments.

Banks Prioritise Deposits, AI and Cybersecurity

The survey highlights a dual strategic focus among banks: strengthening balance sheets while accelerating technology-led transformation.

Deposit mobilisation and liability franchise development are expected to receive the greatest management attention in FY2027.

AI and data-driven banking transformation ranks second, followed by cybersecurity and operational resilience. Retail and micro, small and medium enterprise (MSME) credit growth remains an important priority, although it ranks comparatively lower in the survey’s strategic priorities.

The findings also reveal differences between banking segments. Public sector banks rank AI-led transformation as their leading priority, while private sector banks place the greatest emphasis on deposit mobilisation.

The focus on cybersecurity and operational resilience alongside AI adoption reflects the importance of managing technology-related risks as financial institutions expand digital capabilities and data-driven operations.

ECLGS 5.0 and Infrastructure Spending Seen as Credit Catalysts

Among government-led initiatives, the Emergency Credit Line Guarantee Scheme (ECLGS) 5.0 is viewed by respondents as the measure likely to have the greatest positive impact on credit growth in FY2027.

Infrastructure and public capital expenditure programmes rank next, followed by Production Linked Incentive (PLI) schemes.

Digital public infrastructure and renewable energy and green transition initiatives were also identified as supportive measures.

The survey findings point to expectations that credit guarantees, public investment and industrial policy support could help sustain lending momentum across businesses and economic sectors.

Banking Sector Enters FY2027 with a Constructive Outlook

The FICCI-IBA Bankers’ Survey presents a broadly positive outlook for India’s banking sector, with lenders expecting sustained double-digit credit growth across retail, SME, industrial and services segments.

However, the ability to maintain this momentum will depend on banks’ capacity to strengthen deposit mobilisation, manage funding pressures and navigate global uncertainty.

At the same time, AI adoption, data-driven transformation and cybersecurity are emerging as important strategic priorities alongside traditional balance-sheet management.

As banks move into FY2027, the central challenge will be to convert strong credit demand into sustainable growth while maintaining financial resilience and adapting to a rapidly evolving economic and technological environment.

By : Vanshika Tayal