Retail lending emerges as key driver of bank credit growth

India’s banking sector is expected to see credit growth in an 11–13% range in the first half of 2026, with retail lending emerging as the key driver, as over half of the lenders expect loan expansion in the segment to exceed 13%, according to the latest FICCI-IBA Bankers’ Survey released on Sunday.

The survey, based on responses from 24 public, private, foreign, small finance and cooperative banks, points to a broadly constructive outlook on credit demand, supported by improving asset quality, stronger capital buffers and resilient economic activity. About 46% of respondents expect non-food credit growth in the 11-13% range, while 29% foresee expansion above 13%. Only 8% anticipate growth below 9%, indicating limited downside concerns despite global uncertainties.

Retail lending is projected to remain the central pillar of credit expansion, with 52% of respondents expecting year-on-year growth above 13% and none forecasting growth below 9%, underscoring strong and sustained momentum in the segment. Credit demand from small and medium enterprises (SMEs) is also seen robust, with most banks expecting strong double-digit growth, reflecting improving business activity, greater formalization and continued policy support for small enterprises.

Sectorally, credit demand from services and retail segments is expected to anchor overall growth. Lending to services is likely to remain firmly in double-digit territory, supported by activity in real estate, financial services, logistics and tourism-related sectors. In contrast, industrial credit growth is expected to expand at a more measured pace, largely in the 9-13% range, pointing to a gradual recovery led by infrastructure spending and early signs of a revival in private capital expenditure.

Within industry, demand for term loans is expected to be driven by infrastructure, real estate, automobiles and pharmaceuticals, along with emerging areas such as data centres and defence. Working capital demand is likely to be led by sectors such as textiles, automobiles, pharmaceuticals, engineering goods and food processing, reflecting linkages to trade cycles and operational requirements. In services, commercial real estate, NBFCs and tourism-linked segments are expected to see strong credit demand.

The survey also indicates a broad expectation of a status quo in policy rates over the next six months, suggesting that lenders view the current monetary stance as appropriately calibrated.

Artificial Intelligence (AI) tops the list of disruptive forces, with nearly half the respondents (48%) believing AI will dramatically transform credit underwriting, risk assessment, and collections. Competition and partnerships with fintech and Big Tech came second, followed by the rapid expansion of digital public infrastructure such as UPI, account aggregator, and CBDC (central bank digital currency).

On the strategic front, climate risk management and financial inclusion have become the top two priorities for 2026. Renewable energy financing is seen as the clear winner in sustainable products, with a whopping 83% of bankers picking it as the segment with the highest growth potential.

However, according to the survey, challenges remain. Cybersecurity has emerged as the single biggest risk keeping bankers awake at night (cited by 71%), far ahead of operational or credit risk.