India is witnessing its strongest phase of credit expansion since 2012, driven by robust corporate borrowings that have reached a 13-year high of 18.3% year-on-year in May, according to Morgan Stanley's latest report. Large-ticket corporate lending has emerged as the biggest driver of the current upcycle, with loan growth accelerating to this level for the first time since 2012, indicating a sharp revival in investment-related borrowing by businesses. Corporate loan growth at large private banks rose 26% year-on-year in the June quarter, significantly outpacing retail loan growth of around 10%, as companies increasingly tap banks for working capital, refinancing and liquidity buffers. A majority of banks have shown a sharp uptick in corporate credit demand in the April-June period, which is generally a soft quarter, with lenders reporting that credit growth is coming mainly for working capital and not investment-led projects.
India's commercial sector witnessed an unprecedented surge in financial resources, with total flow zooming 148% year-on-year to ₹7.73 lakh crore in Q1FY27, according to RBI's latest monthly bulletin. Non-food bank credit alone accounted for 65% of this surge at ₹5.05 lakh crore, while non-bank sources contributed ₹2.68 lakh crore. This represents a dramatic shift from the previous year when non-bank sources dominated at 84% (₹2.62 lakh crore) while non-food bank credit was just 16% (₹50,000 crore). As per RBI officials, liquidity conditions improved further, supporting the ongoing robust credit growth as corporates increasingly tapped banks for credit amid tightening bond market conditions and a sharp collapse in capital market mobilisation. Non-food bank lending rose more than ten-fold during the quarter, highlighting the dramatic shift in funding preferences.
The corporate lending revival has lifted overall bank credit growth to 18.6% in the fortnight ended June 30, the fastest pace in more than two years, according to Reserve Bank of India data. Axis Bank's overall loan book grew 19% year-on-year, led by a 37.5% jump in corporate loans and 25% growth in SME credit, while retail loans increased only 8%. Yes Bank Ltd. Chief Executive Officer Vinay Tonse stated that it will be a secular loan growth across sectors in the next two quarters, with the bank's corporate and institutional loan book expanding more than 41% year-on-year. Puneet Sharma, CFO of Axis Bank, confirmed seeing demand from commercial real estate, infrastructure and metal for working capital loans to address shorter cycle requirements, with traction also on project finance and term loans. Increases in rates in the money markets, which were serving as a cheaper alternative for entities wanting to borrow, have also led to a preference for banks.
While corporate lending dominates the current upcycle, retail borrowing has also remained resilient with household loan growth staying above 15% year-on-year for the fourth consecutive month, aided by strong housing demand and recovery in unsecured personal lending growth. Household loan growth remained uneven at 7%–12% in the June quarter, but the improvement in unsecured lending has been supported by the RBI's easing of some earlier regulatory tightening measures that had weighed on personal loan growth. Non-banking financial companies have also participated strongly in the recovery, with retail loan growth for NBFCs accelerating to 19.5% year-on-year in May, compared with 14.9% in the year-ago month. Non-banking financial companies saw retail loan growth accelerate significantly, indicating broad-based credit demand across sectors.
Morgan Stanley expects overall credit demand to remain strong in the coming quarters, supported by continued capital expenditure, improving export growth and resilient domestic consumption. Housing loans are likely to remain a key anchor for household credit growth, while discretionary spending on consumer goods, automobiles and services is expected to provide additional support to retail borrowing. India, Japan, Singapore, Hong Kong, Australia and Taiwan have seen the biggest accelerations in loan growth, with Korea being an exception as corporate capex is largely funded from internal accruals. Thailand is the only economy in the group that has weak credit growth given uneven expansion so far, where households have continued to deliver. The current credit expansion phase is supported by sustained domestic demand, rising wholesale prices and the RBI's regulatory easing measures, creating favorable conditions for continued growth across sectors.
