ICRA Sees Credit Growth Gaining Traction In H2 On GST Rate Cuts, Softer Deposit Costs

Credit growth across banks and non-bank financial companies is set to accelerate in the rest of the financial year, aided by recent GST rate cuts and the expected easing in deposit costs, according to ratings agency ICRA.

The rating agency has projected incremental credit flow to banks at Rs 19–20.5 lakh crore in fiscal 2025-26, up from Rs 18 lakh crore in the previous fiscal, translating into an annual growth rate of 10.4–11.3%.

For NBFCs, credit expansion is estimated at 15–17% on the year as compared with 16% in the previous fiscal.

The stronger outlook comes against the backdrop of lower funding costs, with ICRA expecting banks’ credit costs to rise by just 13 basis points and NBFCs’ by 30 basis points in the ongoing fiscal, even as margins remain under watch.

“We expect the credit cost of banks and NBFCs to go up nearly 13 bps and 30 bps, respectively, vis-à-vis the previous fiscal, with the impact being more pronounced in the non-housing segments,” said AM Karthik, Senior Vice President & Co-Group Head at ICRA.

According to ICRA, recent cuts in GST rates are likely to spur consumption and domestic demand, offsetting some of the drag from global uncertainties and export weakness.

The incremental flow of credit is also being supported by the combination of GST rationalisation and the upcoming cash reserve ratio cut, which together are expected to improve system liquidity.

Even so, risks remain from evolving macroeconomic conditions and geopolitical tensions, particularly for unsecured loans and non-food credit.

As of July 2025, unsecured personal loans stood at Rs 35 lakh crore, or around one-third of the overall NBFC loan book. Weakness in export-linked industries and income shocks in certain segments could add stress for borrowers, ICRA warned.

Despite these pressures, ICRA has maintained a stable outlook for the sector, underpinned by existing capital buffers and the ability of lenders to absorb near-term volatility.

The ratings agency expects the broader impact of tariff-related uncertainties and slowing growth trends to emerge more visibly from the third quarter of the ongoing fiscal.