Bank credit growth and rating upgrade momentum could see some moderation in FY27 as the ongoing West Asia conflict clouds the economic outlook and dampens private sector capital expenditure, according to rating agencies.
Crisil Ratings projected bank credit growth at around 13 per cent in FY27, easing from an estimated 14 per cent in FY26. It also flagged a softening in the credit ratio — a measure of upgrades to downgrades — which declined to 1.5 in the second half of FY26 from 2.17 in the first half, reflecting tariff-related uncertainties and pressures on export-oriented firms.
Bank credit growth had gained momentum in FY26, driven by tax cuts and the substitution of corporate bonds with bank loans because of relatively lower interest rates. But Crisil expects that even as the West Asia conflict drives up India Inc’s working capital debt in the short term, private sector capex may see some lag and sustained deposit growth will be crucial.
"Our credit quality outlook is stable for now, backed by resilient domestic demand and strong corporate balance sheets. But overall, we remain cautious as the duration and intensity of the West Asia conflict are uncertain. If it is prolonged, slower global growth, gas availability challenges, higher-for-longer crude oil prices, and consequently impact on consumer sentiment will bear watching. The government and regulators may have to step up relief and supportive measures, as seen in the past. The extent of these can also have a bearing on the credit quality outlook," said Somasekhar Vemuri, senior director, Crisil Ratings.
Icra Ratings echoed similar concerns, noting that while conditions for a private capex revival had improved prior to the conflict — aided by favourable trade trends, consumption measures and healthy capacity utilisation — the evolving geopolitical situation remains a key risk. Elevated energy prices could stoke inflation, prompt tighter monetary policy and impact demand, capital flows and corporate profitability.
K. Ravichandran, executive vice-president and chief rating officer at Icra, estimated FY27 credit growth at 11–12 per cent. MSMEs remain particularly vulnerable due to limited financial buffers, with rising costs and export disruptions likely to strain businesses across sectors such as manufacturing, services and logistics.
CareEdge Ratings also pointed to early signs of moderation in credit metrics. It estimated the credit ratio at 1.93 in the second half of FY26, down from 2.56 in the first half, though still above the decadal average of 1.55. The agency expects credit growth in FY27 at 13–13.5 per cent.
“Domestic policy support and relatively strong corporate balance sheets offer some cushion. However, the key question is whether these will be sufficient if global conditions worsen further. For now, the outlook remains stable, but the margin for comfort is narrowing,” said Sachin Gupta, executive director and chief rating officer, CareEdge Ratings.