India's systemic credit growth accelerated to 13.8% as of March 15, demonstrating remarkable resilience amid global market stress. According to Motilal Oswal Financial Services, this growth is underpinned by strong liquidity buffers and a consumption-led recovery following GST cuts. The report notes that banks have scope to further expand their credit-to-deposit (CD) ratios, as deposit growth remained steady at 10.8% while CD ratios rose to 83%, reflecting faster credit off-take. Looking ahead, Motilal Oswal expects credit growth to remain resilient at around 13.5% in FY27, aided by regulatory support and scope for further expansion in credit-deposit ratios.
India's private credit market demonstrates remarkable resilience as global markets face significant challenges. According to The Economic Times, the sector is experiencing heightened uncertainty due to vulnerabilities in leveraged credit structures in developed markets, driven by rapid interest rate increases, ongoing geopolitical tensions, and tightening liquidity conditions. However, the current turbulence in global private credit markets is being misdiagnosed, as the stress has not been driven primarily by borrower defaults or deteriorating credit quality. In many affected funds, underlying loans have continued to perform, covenants have held, and repayment discipline has remained intact, with the fundamental problem being the structure of the funds themselves rather than the credit itself.
India's private credit ecosystem operates on a fundamentally different blueprint compared to global markets. As reported by The Economic Times, private credit in India currently accounts for approximately 0.6% of GDP and just 1% of total bank credit, while in the US, private credit has expanded to nearly 5% of GDP. This vast difference highlights that while the global market may be facing saturation and leverage issues, India is operating within a significant margin of safety. The primary difference lies in how funds are organised, with globally many funds operating under perpetual or semi-liquid structures that allow investors to withdraw money relatively quickly, creating dangerous loops during volatile times.
India's regulatory approach to private credit provides significant structural advantages. According to The Economic Times, Category I and II Alternative Investment Funds (AIFs) are generally prohibited from borrowing money to make investments under SEBI rules, ensuring that returns are driven primarily by actual company performance rather than layers of debt. This strict leverage control ensures that problems in one fund are unlikely to trigger systemic collapse. The market shifted towards closed-ended Category II AIF structures in response to the shadow banking crisis of 2018, with these funds mandated to be closed-ended, meaning money is locked in for fixed periods that align with underlying loan maturity timelines.
Banks are likely to report a steady performance in Q4FY26 despite rising macro uncertainty, with credit growth holding firm and asset quality remaining stable. According to The Economic Times, net interest income for the banking sector is estimated to grow 7.4% year-on-year in Q4, with profit after tax rising 7% year-on-year. Private banks are expected to lead earnings growth with an 11.9% increase, while PSU banks may see modest growth of around 2%. Net interest margins are likely to remain rangebound as the full impact of the December rate cut is reflected in lending yields while funding costs stay elevated. Over the medium term, the brokerage expects earnings across its coverage universe to grow at a compound annual rate of about 16% between FY26 and FY28.
