Private Capex Credit Growth Cycle Yet to Take Off Despite 18% Rise in Project Loan Sanctions
Kotak report reveals that despite an 18% rise in project loan sanctions, India's private sector investment has not yet triggered a massive credit cycle.
India's private sector investment landscape is showing signs of life, yet it has not yet ignited the massive credit growth cycle many had anticipated. According to a recent report by Kotak Institutional Equities, while fresh project loan sanctions witnessed a significant 18 per cent year-on-year increase in FY26, this uptick has not yet translated into a robust credit expansion driven by private capital expenditure (capex).
The Gap Between Sanctions and Credit Growth
The data presents a complex picture of the Indian economy. On one hand, there is a clear momentum in project approvals; on the other, the broader credit trajectory remains steady rather than explosive. Kotak noted that while the 18 per cent rise in fresh project loan sanctions brings them closer to the levels seen during the peak of the FY2010-11 period, the actual impact on the overall credit cycle is still missing.
Currently, fresh project loan sanctions to the private sector by banks and financial institutions stood at approximately 3 per cent of total loans in FY26, a figure that remains unchanged from FY25. Pending disbursements accounted for roughly 2 per cent of the total.
Infrastructure Remains the Primary Driver
Despite the lack of a full-scale credit boom, certain sectors continue to dominate the lending landscape. Infrastructure remains the preferred destination for bank funding, capturing nearly 50 per cent of all project sanctions in FY26. This trend is consistent with the patterns observed between FY17 and FY25.
Key sector insights include:
- Power and Roads: Historically, infrastructure sanctions have been driven by the power, roads, and bridges sectors. However, there was a sharp decline in sanctions for roads and bridges during FY26.
- Emerging Sectors: There has been a noticeable rise in sanctions for construction projects, as well as projects within the chemical and fertiliser industries.
- Greenfield Projects: Greenfield initiatives continue to command a major share of the total project sanctions.
Regional Leaders and Mega Project Trends
Geographically, the distribution of private-sector project sanctions shows clear leaders. Maharashtra and Gujarat continue to secure the largest shares of these sanctions. Meanwhile, states like Rajasthan and Tamil Nadu have demonstrated a notable improvement in attracting project funding.
When looking at the scale of investment, the report highlights a shift in "mega projects" (those costing more than Rs 50 billion). Since FY14, these massive undertakings have received less than Rs 1 trillion in sanctions. This is a stark contrast to the much higher volumes recorded in the early 2010s, when sanctions for such projects reached Rs 2.4 trillion in FY10 and Rs 1.8 trillion in FY11.
The Outlook for Credit Trajectory
While overall credit growth is currently hovering around 18 per cent year-on-year—supported by a strong recovery in corporate lending—the brokerage remains cautious. Kotak suggests that the current recovery in project sanctions is not yet powerful enough to fundamentally shift the broader credit growth path.
“Our analysis suggests that the improvement remains insufficient to materially alter the overall growth trajectory at this stage,” the brokerage stated, noting that risks to credit growth remain tilted to the downside.
Looking ahead, the Reserve Bank of India (RBI) remains optimistic about the long-term trend. The RBI's latest bulletin projects that private corporate sector capital expenditure could rise to Rs 3.2 trillion in FY27, up from Rs 2.6 trillion in the previous fiscal year.