In a promising sign for economic recovery, bank credit in India jumped more than 7% during FY2026, propelled by explosive demand for retail loans. This marks a departure from previous years’ sluggish corporate borrowing, spotlighting the retail sector’s pivotal role in fueling credit expansion.
Retail loans now account for nearly half of total bank credit, with personal loans leading the charge at double-digit growth rates. Home loans and vehicle financing followed suit, benefiting from urbanization trends and rising disposable incomes. Banks’ strategic push into consumer finance has paid off, boosting their net interest margins.
The Reserve Bank of India (RBI) has played a supportive role through accommodative policies, keeping lending rates competitive. Yet, this rapid growth raises flags on household debt levels, prompting calls for prudent underwriting standards. Non-banking financial companies (NBFCs) are also joining the fray, intensifying competition.
From a macroeconomic lens, this credit surge supports consumption-led growth, a vital engine for India’s GDP. It reflects improved financial literacy and easier access via UPI-linked lending platforms. Still, banks must balance growth with risk management to avoid NPAs in a potential downturn.
As FY26 draws to a close, the banking industry’s outlook remains optimistic. Retail credit’s momentum could sustain 12-15% overall growth next year, analysts say. This evolution highlights India’s transition to a consumption-driven powerhouse, with retail loans at its heart.
