Icra Sees Slower Corporate Credit Growth

• Icra cautiously views corporate credit growth despite bank optimism.
• RBI policy changes & global rates impact corporate borrowing trends.
• Icra raises bank credit growth forecast slightly to 10.7-11.5% for FY26.

Despite rising projections from major banks, the rating agency Icra offers a more reserved view on the trajectory of corporate credit expansion. Delving into the details, this article explores the drivers behind the current credit scenario, weighing potential influences and offering insights into the evolving financial landscape for the upcoming fiscal year. Explore the factors shaping this important sector and what lies ahead.

Growth Ambiguity Persists

Even as prominent financial institutions update their forecasts with an upward revision for corporate credit growth, the rating agency Icra is adopting a different stance. The agency highlights the absence of a substantial recovery within the realm of corporate lending. Ajay Gupta, a senior VP at Icra, conveyed that predicting the definitive direction of corporate credit is challenging. He indicated that while some improvement was observed in the second quarter, its sustainability remains uncertain, contingent upon diverse influences. This situation suggests a complex interplay of forces shaping the financial landscape, creating a need for careful analysis.

Factors Behind Uptick

According to Gupta, the surge in demand during October might be temporary. This could be due to corporate entities borrowing from banks to capitalize on anticipated rate cuts before securing bonds. Additionally, the relaxation of external commercial borrowing (ECB) regulations by the Reserve Bank of India (RBI) and the decline in global interest rates could encourage companies to seek funding from international sources. This nuanced situation reflects an environment where several variables could impact the trajectory of corporate credit, requiring a thorough understanding of financial dynamics.

Banks' Credit Goals

SBI's chairman, C. S. Setty, stated that the bank had increased its target for corporate credit growth from single-digit to 10%, supported by a loan pipeline valued at Rs 7 lakh crore. SBI anticipates an overall credit growth of 12-14%. Similarly, Bank of Baroda projects a 10-11% rise in corporate credit and an 11-13% growth in total lending. These contrasting viewpoints emphasize the need to observe diverse perspectives and their potential effect on the financial system, underscoring the complexities involved in predicting economic trends.

Icra's Revised Outlook

Icra has marginally improved its overall bank credit growth outlook to 10.7-11.5%, a slight increase from the earlier projection of 10.3-11.4%. This adjustment takes into account the impact of GST cuts and liquidity support facilitated through the CRR reduction. Sachin Sachdeva, V-P and sector head at Icra, mentioned that the first half of FY2026 has witnessed incremental credit off-take of Rs 10.1 lakh crore, with significant expansion in September. Icra has enhanced its credit expansion projection for FY26 to Rs 19.5-21 lakh crore, which represents an increase of Rs 0.5 lakh crore from the prior estimate. These revisions signal a cautious yet optimistic adjustment to accommodate the ongoing financial developments and demonstrate the fluidity of the credit market.