Bank lending has re-emerged as the dominant source of funding for India's commercial sector in FY26, with its share in overall resource mobilisation rising to a three-year high of 65.4%, according to the RBI's April bulletin. Total resource flows stood at ₹44.7 lakh crore in FY26, while non-food bank credit climbed sharply to ₹29.2 lakh crore, marking a decisive shift in corporate financing patterns. This compares with a more evenly distributed funding mix a year earlier, which has now tilted clearly in favour of banks.
The rebound in bank lending has been particularly strong, with outstanding bank credit reaching ₹219 lakh crore by end-March 2026, marking a 16% year-on-year increase. After falling from about ₹23 lakh crore in FY24 to ₹18.1 lakh crore in FY25, non-food bank credit expanded by 61.5% in FY26, reflecting fresh disbursements rather than changes in outstanding credit. A late surge in lending further boosted the overall numbers, demonstrating the scale of the recovery in bank-based financing.
Market-based instruments presented a mixed picture in FY26. Equity fundraising weakened, with its share dropping from 10.8% in FY25 to 7.7% in FY26, indicating reduced appetite for public market financing. In contrast, bond issuances gained traction, rising from 5.6% to 6.8%, indicating a preference among firms for longer-tenure debt even as reliance on bank funding increased. Corporate bond issuances rose 52.4% in FY26 to ₹3 lakh crore from nearly ₹2 lakh crore, while commercial paper issuance contracted by 57.8%, suggesting reduced demand for short-term funding.
The structure of non-bank financing has also undergone notable changes. Foreign capital has gained prominence, increasing from 6.8% of total flows in FY24 to 11% in FY26, rising from ₹2.4 lakh crore to ₹4.9 lakh crore. Meanwhile, domestic non-bank sources saw their share decline from 28.7% to 23.6% during the same period. External commercial borrowings grew 66.2%, signalling renewed appetite for overseas debt, while foreign direct investment also maintained an upward trajectory, rising 11% in FY25 and accelerating to 31.3% in FY26 to reach ₹3.2 lakh crore.
Despite the strong bank lending performance, the broader market environment has created headwinds for financial sector stocks. The Private Sector Banking / Retail and SME Lending sector faces sector-specific challenges including rising competitive intensity, shifting consumer preferences, and regulatory developments that have contributed to a more difficult operating environment than investors had priced in. Axis Bank, with 39.8% FII ownership, has been particularly sensitive to global risk-off events, experiencing a 19% decline from its 52-week high of ₹1,340 to current levels around ₹1,080. The stock's valuation has compressed from peak multiples to more reasonable levels, reflecting the broader market correction and sector-specific pressures.
