The survey was conducted against the backdrop of a resilient Indian economy, with real GDP growth accelerating to 7.8% in Q1 FY2026-27, supported by robust manufacturing and services activity, while real Gross Value Added (GVA) grew by 8.2%. Investment activity also strengthened, with gross fixed capital formation rising by 11.9%, alongside 7.1% growth in private final consumption expenditure.
At the same time, CPI inflation stood at 4.82% in August 2026, with food inflation at 5.95%, an increase from the levels seen earlier. India’s banking sector continues to demonstrate resilience, supported by improved asset quality, stronger capital buffers, sustained retail and SME credit momentum, and emerging signs of a broader revival in private-sector capital expenditure. Against a backdrop of strong domestic growth momentum, evolving inflation dynamics and heightened geopolitical and global trade uncertainties, the survey offers insights into the credit outlook, sectoral credit demand, emerging risk perceptions and the strategic priorities shaping the banking ecosystem during the second half of 2026.
The survey results suggest that the banking sector maintains a strongly constructive outlook on credit growth, underpinned by resilient demand across retail, SME, industrial and services segments, even as banks navigate emerging funding and macroeconomic headwinds. Nearly three-fourths of respondents expect non-food credit to grow in the mid-teens or higher year-on-year over the next six months, and almost all expect at least double-digit growth. Private Banks are the most optimistic, with nearly nine in ten expecting growth in the mid-teens or higher, followed by Public Sector Banks, where nearly three-fourths hold this view. Foreign Banks present a more measured view, with all respondents expecting growth at a lower double-digit pace, consistent with their more focused exposure to select segments.
Retail and SME lending emerge as the clearest drivers of credit growth. More than four-fifths of respondents expect both retail loans and SME credit to grow at a robust double-digit pace y-o-y, and almost all expect double-digit growth in SME credit. Credit to industry is also expected to remain strong, with nearly all respondents expecting healthy expansion, while more than three-fourths expect credit to the services sector to grow at a robust double-digit pace, with half of all respondents projecting growth in the mid-teens or higher. The outlook for agriculture and allied activities is positive but more varied, with nearly three-fourths of respondents expecting double-digit growth.
Within industry, term loan demand is expected to be led by Infrastructure, followed by Engineering Goods, Auto & Auto Components, Electronics, and Metals, Iron & Steel. Working capital demand, by contrast, is expected to be driven more by trade-cycle and operational financing needs, with Auto & Auto Components and Petroleum, Coal & Fuel Products leading, followed by Food Processing, Chemicals and Metals, Iron & Steel. Within services, term loan demand is expected to be led by NBFCs, Tourism, Hotels & Restaurants and Commercial Real Estate, while Trade (Wholesale & Retail) stands out as the dominant driver of services-related working capital demand, followed by Tourism, Hotels & Restaurants and Transport Operators.
The survey also points to structural constraints shaping the credit growth outlook. Slower deposit growth relative to credit demand is identified as the biggest constraint to sustaining healthy credit expansion, cited by about two-thirds of respondents and by a large majority of Public Sector Banks, underscoring the growing importance of strengthening the liability franchise. Economic and geopolitical uncertainties are also a significant concern among Private and Foreign Banks. Recent measures to enhance foreign-currency deposit mobilisation, including the flexibility provided for FCNR(B) deposits, are expected to provide additional support to banks in strengthening their funding base and managing liquidity pressures; the survey responses reflect circumstances prevailing at the time of the survey.
Geopolitical risks and supply-chain disruptions are seen as the biggest impediment to a broad-based revival in private-sector capital expenditure, cited by around three-fifths of respondents, followed by global economic uncertainty and, to a lesser extent, a weak demand outlook. This suggests that investment confidence and visibility over the operating environment, rather than the cost of capital alone, remain critical to unlocking a sustained private capex cycle.
From a strategic perspective, deposit mobilisation and liability franchise strengthening is expected to receive the greatest management attention in FY2027, followed by AI and data-driven banking transformation and, third, cybersecurity and operational resilience. Retail and MSME credit growth is an important, though comparatively secondary, priority. This reflects the sector’s dual emphasis on reinforcing balance-sheet fundamentals while accelerating technology-led transformation. Public Sector Banks rank AI-led transformation first, while Private Banks place the greatest emphasis on deposit mobilisation.
On the policy front, ECLGS 5.0 is viewed as the government-led initiative likely to have the greatest positive impact on credit growth in FY2027, reflecting confidence in guarantee-backed credit support. It is followed by infrastructure and public capex programmes and Production Linked Incentive (PLI) schemes, with digital public infrastructure and renewable energy and green transition initiatives also identified as supportive.
Overall, the survey paints a picture of a banking sector that remains confidently optimistic about sustained double-digit credit growth across retail, SME, industrial and services segments. At the same time, the findings highlight that the constraints are increasingly structural rather than monetary in nature, with deposit mobilisation and geopolitical uncertainty emerging as the principal headwinds to be managed as banks position themselves for continued expansion into FY2027.
