Corporate Preference for Alternative Funding Keeps Bank Credit Growth Subdued

In a revealing report by the State Bank of India (SBI), it is projected that bank credit growth in the nation will remain subdued. The underlying reason is the trend among corporations to seek alternative funding sources in the current low-interest rate environment.

The analysis, which scrutinizes data over an eight-year trajectory, found that during previous phases like FY21 and FY22, corporations typically turned away from bank loans, favoring non-bank avenues instead. This pattern appears to be resurfacing, with the SBI report detailing that the share of incremental bank credit in total resource flow is expected to drop significantly from 31.3% in FY25 to just 22% by the second quarter of FY26.

While overall headline credit growth stands at 9.5% as of June 2025, the growth rate in non-bank resources has surged to 15.6%. Meanwhile, the credit to the Micro, Small and Medium Enterprises (MSME) sector recorded an impressive growth rate of 21.8% but is anticipated to dwindle in FY26. The report also noted a slight slowdown in Scheduled Commercial Banks (SCBs) credit growth, which reduced to 9.8% as of July 11, 2025, from the 14% witnessed in the same period last year.

(With inputs from agencies.)