India’s credit engine is accelerating once again, and the latest economic indicators clearly reflect this upward trend. With GST collections consistently hitting new highs, liquidity conditions improving, and retail demand strengthening, the banking sector is entering FY26 with solid momentum. In this environment, ICRA has revised its credit growth forecast upward, signalling a positive shift in India’s lending cycle. This upgrade is backed by real, measurable data rather than sentiment alone. It highlights how India’s formal economy is expanding and creating stronger credit opportunities across sectors.

ICRA now projects bank credit to grow by 10.7%–11.5% in FY26, compared to its earlier estimate of 10.4%–11.3%. This translates into ₹19.5–21 lakh crore in fresh lending during the financial year, reflecting strong financial activity and borrower confidence. The revised forecast comes at a time when several economic indicators show a stable recovery and rising credit appetite. These projections underline the robust health of the Indian banking system. They also signal that credit demand is broadening as economic stability improves.

A major factor supporting this upgraded outlook is the surge in GST collections. Higher GST revenue typically indicates stronger business performance, better cash flows, and increased consumption—all key drivers of credit growth. This trend directly contributes to higher working-capital needs for businesses and rising demand for retail loans. The consistency of GST performance reflects the strengthening of India’s formal economy and improved compliance among businesses. The expanding tax base also brings more transparency into financial activity. As consumption grows, it fuels credit demand across multiple categories, from MSMEs to homebuyers.

Improved liquidity conditions have further boosted ICRA’s credit growth expectations. The Reserve Bank of India’s CRR cut and easing liquidity pressures have increased banks’ lending capacity. Stable liquidity helps banks manage their cost of funds more effectively, allowing them to lend with greater confidence. This environment supports a healthier credit flow into high-demand sectors. As liquidity remains supportive, both borrowers and lenders operate with greater predictability and efficiency.

Interestingly, this growth cycle is not driven by large corporates. Instead, the primary momentum is coming from retail borrowers and MSMEs—segments that have remained resilient despite economic fluctuations. Housing finance, MSME credit, and personal loans are emerging as the lead contributors to overall credit growth, supported by festive consumption and strong demand patterns. The steady rise in non-food credit also confirms the broad-based nature of this expansion. These segments play a crucial role in job creation and consumption, strengthening the foundation of India’s credit market. Their continued demand supports the overall health of the financial system.

Supporting this positive outlook is the stability of credit quality across banks. Despite the rise in lending, ICRA expects Gross NPAs to remain between 2.1%–2.3%, while credit costs are projected to stay around 0.7%. This reflects robust balance sheets, improved underwriting standards, and better borrower discipline. With Net Interest Margins likely to improve slightly as deposit rates stabilize, banks may see healthier profitability ahead. A combination of strong asset quality and improving margins creates a stable framework for sustainable credit growth. As FY26 progresses, the banking sector appears well-positioned to expand lending responsibly while maintaining strong risk management practices.