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India Ratings expects the bank credit in India to increase 13% annually in FY27. The future is stable, though prevailing high loan-to-deposit ratios have put pressure on it. The current consumption trends and the policy support will assist in maintaining the credit demand in the upcoming financial year. The rating agency indicated that the consumption demand will improve because of the rationalisation of GST and the alleviation of inflation. The disbursements of capital expenditure during the next quarters will also most likely boost loan expansion. The FY26 (2026) will see India's ratings predicting the same credit growth of approximately 13%, showing a sustainable lending climate. Meanwhile, India Ratings also indicated high loan-to-deposit ratios as a limitation. LDR is at a low level of 82%, and this restrains the capability of banks to lend actively. The agency has consequently had an apathetic perspective of the banking sector during FY27. India ratings, in its evaluation, observed that there has been a distinct change in conditions in the sector since the interest rates have been drifting downwards. The Reserve Bank of India has, on average, kept a liquidity buffer of 1.9 trillion. We perceive this liquidity assistance to be a major aspect that enhances the visibility of growth to the banks. The affordability of retail credit has gone up after a cumulative reduction of 125 basis points in the repo rate. Household spending pressure has also been alleviated as a result of reduced rates in GST. The combination of these changes has promoted borrowing and enhanced credit demand in consumer-targeted sectors. Changes in policy have also facilitated credit flow. Restated risk weight of the non-banking financial businesses is meant to increase the lending business. The new definition has brought more businesses into the eligibility credit pool since it has increased turnover and the limit of investment as well. Banks in the period between April 2024 and September 2025 were also wary of loaning for retail lending. Fears of poor quality of loans with minimal security and a reduction in lending by NBFCs burdened growth. Risk appetite was also low on the basis of tightened capital rules and lower market rates in this six-quarter period. Corporate lending also retarded as liquidity remained rattled and lending spreads remained in subdued mode. The elevated LDR levels caused the banks to be selective, yet the capital spending in the private sector remained weak, and the corporates were busy in deleveraging. India's ratings indicated that its recovery started showing signs only in July 2025. Karan Gupta, the head and director of financial institutions with India ratings, opined that loan growth will be restrained by the high LDRs. He projects a system LDR to be approximately 81.9% in the first half of FY26 and maintains the credit growth in FY27 at a level where it is about 13%. Expectantly, profitability should increase in FY27 as net interest margins should improve, and the stress under the unsecured retail loans may be reduced. The cost of credit is likely to stabilise at 71 basis points because the cost was 78 basis points in FY26. We feel should help achieve a slow recovery in bank earnings.

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