India's private banks are witnessing a resurgence in corporate lending, driven by improved asset quality, strategic sectoral focus, and regulatory support. But this growth comes with a crucial difference from the past—disciplined underwriting and strong capital buffers are replacing the excesses that once plagued the sector.
The narrative around corporate loan growth at India's private banks requires careful unpacking.
The corporate and other wholesale segment grew just 1.7% year-on-year in Q1 FY26. This divergence tells an important story: MSME and mid-market segments are driving growth through export up-fronting and working capital needs, while traditional corporate lending remains selective due to pricing pressure and limited private capex demand. InvestorPresentations +2
ICICI Bank's domestic corporate portfolio grew 11.9% year-on-year (not 18.5% as sometimes mentioned), with management emphasizing "risk-calibrated growth" over volume chasing. Yes Bank's corporate book expanded approximately 20% year-on-year, while the 41% figure cited in some discussions actually refers to retail disbursements, not corporate loans. Kotak Mahindra Bank's corporate banking grew 15% year-on-year to ₹121,875 crore, positioning it as the fourth-largest private sector bank by balance sheet size. Transcripts +7
Sovereign bond yields have been climbing, though they haven't consistently breached the 7% threshold as sometimes suggested. India's 10-year government bond yield has been trading in the 6.75-6.95% range during 2026. However, corporate bond yields have surged nearly 80 basis points in Q4 2026, with three-year corporate bonds reaching 7.95% while bank lending rates remained stable around 8.40%.
This widening gap has prompted companies to shift from bond markets to bank loans. Companies are "reluctant to lock themselves into high fixed-rate bond issuances at prevailing yields," preferring bank loans that offer flexibility to prepay and refinance if yields soften. This shift is particularly evident in working capital demand, where companies value the ability to renegotiate terms compared to longer-term fixed-rate bond issuances.
HDFC Bank identified strong corporate loan demand across electronics, food processing, automobiles and auto ancillaries, renewable energy, and semiconductors. Notably, commodities were not highlighted as a key demand driver in management commentary. The bank maintains a well-diversified loan book with the top 20 borrower exposure at just 9.4% of total exposure, indicating low concentration risk. An impressive 76.8% of the externally rated wholesale book is rated AA and above. Transcripts +4
Yes Bank's sectoral mix shows greater exposure to metals and mining, which it identifies as a focus sector along with chemicals, infrastructure, and renewable energy. The bank's basic metal and metal products exposure totals ₹135,007 crore across priority and non-priority sectors. This different risk profile requires careful monitoring, especially given the infrastructure sector's gross NPA ratio of 6.13%, the highest among disclosed sectors. InvestorPresentations +2
The Reserve Bank of India's June 2026 announcement offering full hedging-cost support for three- to five-year FCNR(B) deposits represents a significant liquidity injection. The RBI is subsidizing currency hedging costs, allowing banks to offer NRIs dollar deposits at 5.5%+—well above US Treasury rates—without taking unhedged currency risk. The cost to RBI is approximately $125 million per billion raised, with potential inflows estimated at $20-40 billion.
This policy provides several benefits: banks can deploy 100% of INR proceeds for lending (FCNR deposits are exempt from CRR and SLR requirements), and the 3-5 year tenor provides stable funding compared to short-term wholesale borrowing. HDFC Bank, with its established NRI franchise, and ICICI Bank are well-positioned to benefit from this initiative, though all authorized dealer Category-I banks have equal access.
The current corporate lending expansion rests on a foundation of significantly improved asset quality. The banking sector's gross NPA ratio has declined to a multi-decadal low of 2.1% in FY26, a massive improvement from the peak of 11.18% in March 2018. Net NPAs fell to a record low of 0.47%. This transformation enables banks to pursue growth with confidence.
HDFC Bank management emphasized they "will not go down our credit standards for underwriting, whatever would be the cycle". ICICI Bank adopted a "return of capital" philosophy with systematic underwriting improvements, while Yes Bank learned from its crisis to pursue "very, very calibrated, cautious" growth rather than aggressive expansion that could create pain points for investors. Transcripts +2
Axis Bank exemplifies this disciplined approach. Despite targeting growth 300 basis points above industry rates, management stated they "have not sacrificed our asset quality at all. We are very, very careful where we are giving this money out". The bank maintains a CET-1 ratio of 14.38% and has additional provisions of ₹8,244 crores not reckoned for regulatory capital computation, representing an extra 53 basis points of capital cushion. Transcripts +1
The most significant constraint facing corporate loan growth is deposit mobilization. As of June 30, 2026, bank credit grew 18.6% year-on-year while deposits rose 13.3%, creating a 535 basis point differential. The loan-to-deposit ratio stands at 82.6%, well above the 78.9% recorded a year ago.
This gap reflects a structural shift in household savings behavior, with more money flowing into mutual funds, equities, and other market-linked instruments. Banks are increasingly relying on certificates of deposit, which now account for 2.6% of total deposits—the highest share in a decade.
Private banks are responding with multi-faceted strategies. Yes Bank grew retail and branch-led deposits 20% year-on-year to ₹1.69 lakh crores, now representing 60% of total deposits. The bank improved its CASA ratio to 33.7% and leverages its 38% market share in UPI transactions to drive current account deposits. Kotak Mahindra Bank's digital platform Kotak811 delivers a monthly customer acquisition run rate of 298,000, with savings accounts growing 32% year-on-year. Transcripts +5
The corporate loan growth dynamics at India's private banks reflect a fundamental transformation from the previous decade's excesses. Banks are pursuing growth through disciplined underwriting, strong capital buffers, and strategic sectoral focus rather than volume expansion. The improved asset quality across the banking sector provides confidence to expand corporate lending, while regulatory initiatives like the FCNR(B) scheme offer additional liquidity support.
However, the deposit mobilization challenge represents a structural constraint that will require continued innovation in liability franchise building. Banks that can balance disciplined corporate growth with systematic deposit mobilization—through digital acquisition, relationship banking, and product innovation—will be best positioned to sustain their expansion momentum.
The message from India's private banking sector is clear: corporate loan growth is back, but this time it's built on a foundation of risk discipline rather than reckless expansion.
