Private Banks Bullish on Credit Growth Despite Deposit Crunch
Private banks expect mid-teen credit growth despite deposit constraints, according to the latest FICCI-IBA Bankers' Survey.
India's private banking sector is projecting a strongly constructive outlook for credit growth, driven by a surge in demand across retail, industrial, and SME segments. According to a recent FICCI-IBA Bankers’ Survey focusing on the July to December 2026 period, nearly nine out of ten private banks expect growth to hit the mid-teens or higher.
Broad Sector Optimism
The survey reveals a general sense of confidence across the entire banking landscape. Nearly 75% of all respondents anticipate that non-food credit will grow at a mid-teen pace or higher year-on-year over the coming six months. In fact, almost every participant expects at least double-digit growth.
While private banks are leading the charge in optimism, Public Sector Banks (PSBs) are following closely, with roughly three-fourths sharing the same positive view. Foreign banks are also expecting expansion, though their projections lean toward a lower double-digit pace.
Drivers of the Credit Boom
The resilience of the banking sector is being supported by several key factors, including stronger capital buffers, improved asset quality, and a revival in private-sector capital expansion. This optimism is backed by strong macroeconomic data, including:
- GDP Growth: Real GDP accelerated to 7.8% in Q1 FY2026-27.
- GVA Growth: Real Gross Value Added grew by 8.2%.
- Investment: Gross fixed capital formation saw a rise of 11.9%.
- Consumption: Private final consumption expenditure increased by 7.1%.
Where is the Demand Coming From?
Retail and SME lending continue to be the primary engines of loan expansion, with over 80% of respondents projecting robust double-digit growth in these areas. Beyond these, other sectors showing strength include:
- Industrial Credit: Driven largely by term loans for infrastructure, engineering goods, and the auto components sector.
- Services Sector: Demand is being led by Non-Banking Financial Companies (NBFCs), tourism, hotels, restaurants, and commercial real estate.
The Roadblocks: Deposits and Geopolitics
Despite the bullish outlook, the sector is grappling with significant operational hurdles. The most pressing issue is the gap between loan demand and funding.
"Slower deposit growth relative to credit demand is identified as the biggest constraint to sustaining healthy credit expansion," the report noted, with about two-thirds of respondents—including a vast majority of Public Sector Banks—highlighting the urgent need to strengthen their liability franchises.
Furthermore, external factors are casting a shadow over private-sector capital expenditure. Approximately 60% of respondents cited geopolitical risks and supply-chain disruptions as the primary impediments, followed by global economic uncertainty and a weak demand outlook.
Priorities for FY27 and Policy Outlook
Looking ahead to the 2027 financial year, banks are shifting their focus toward sustainability and modernization. The top priorities identified include:
- Deposit Mobilization: Strengthening the liability franchise to support loan growth.
- Digital Transformation: Implementing artificial intelligence and data-driven banking.
- Security: Enhancing cybersecurity measures.
On the regulatory and policy front, the survey indicates that bankers view the ECLGS 5.0 government initiative as the most likely catalyst to deliver a positive impact on credit growth moving forward.