Corporate Shift to Alternate Funding Keeps Bank Credit Growth Low: SBI Report

Rapid Summary

• An SBI report highlights that bank credit growth in India is expected to remain low as corporates increasingly turn to choice funding sources in the current low-interest rate habitat.
• Ancient analysis shows a pattern during periods like FY21 and FY22 when low interest rates encouraged corporations to avoid bank loans and opt for other funding avenues.
• The share of incremental bank credit in total resource flow is forecasted to decline sharply from 31.3% in FY25 to 22% by Q2 FY26.
• Current headline credit growth stands at 9.5%, while non-bank resource flows are growing faster at 15.6%. MSME sector credit has shown notable growth at 21.8%.
• Scheduled Commercial Banks (SCBs) reported slowing credit growth, decreasing from 14% last year (July) to 9.8% this year (July).
• Between April-July this year, YTD bank credit increased by ₹2.19 lakh crore compared with ₹3.79 lakh crore last year during the same period.
• Deposit inflow remains strong due to higher returns on term deposits, shifting patterns away from savings deposits whose share fell from 33% two years ago to just over 29% now.
• Projected ranges for FY26: deposit growth between 12-13%, while overall bank credit rise will be modest at around a range of 10-11%.

Indian opinion Analysis

The SBI report underscores a notable shift in corporate behaviour influenced by macroeconomic conditions such as prolonged low-interest rates, indicating corporates prefer non-bank alternatives for capital raising during these cycles-a trend corroborated by declining reliance on incremental bank credits projected until Q2 FY26.

This progress reflects evolution within india’s financial ecosystem where alternative funding mechanisms are playing an increasingly larger role-potentially fostering innovation but also diluting traditional banking’s centrality within the economy’s liquidity framework.

Notably, sectors like msmes continue demonstrating robust borrowing (~21%), suggesting focused government reforms and incentives could effectively bridge financing access gaps vital towards contributing economic scales onto stability markers amidst lowered broad trends concerning banks lending general-size benchmarks Read more: Link