New Delhi, Jan 6 (.) India’s banking sector is entering 2026 on a relatively stable footing, supported by a clear shift in lending strategy towards secured retail credit, rising focus on MSMEs and improving asset quality, according to Crisil Intelligence’s Banking Sentimeter report for the current month released here on Tuesday.
Gross banking credit outstanding rose steadily through 2025, reaching Rs 195.27 trillion by late November, compared with Rs 182.44 trillion at the end of March. Retail credit remained the backbone of growth, accounting for nearly one-third of total outstanding credit.
However, the nature of retail lending has undergone a marked transformation, with banks increasingly favouring secured products over unsecured loans.
Crisil noted that a significantly higher share of incremental credit during the past year flowed into secured retail lending.
Housing loans continued to dominate this segment, contributing roughly half of the incremental secured retail credit, reflecting sustained demand for home ownership.
Loans against gold jewellery also emerged as a key growth driver, accounting for nearly one-third of incremental secured retail lending, a sharp increase compared with the previous year.
In contrast, unsecured retail personal loans lost momentum.
The share of unsecured loans in incremental credit declined, while overall growth in this category slowed. Crisil attributed this trend to rising concerns around borrower leverage and regulatory tightening, which prompted banks to adopt a more conservative risk posture.
A major positive highlighted in the report is the sharp acceleration in credit flow to micro, small and medium enterprises.
The share of MSMEs in incremental bank credit nearly doubled over the past year, making it one of the fastest-growing segments in the loan book. As a result, MSMEs now command a meaningfully higher share of outstanding credit, driven largely by strong disbursements from public sector banks.
Crisil said this surge reflects banks’ preference for secured lending and, to some extent, changes in MSME classification norms that expanded eligibility.
Asset quality in the secured MSME portfolio remains stable, although the report flagged early signs of stress in small-ticket unsecured business loans.
External risks persist for the segment, particularly in export-oriented industries such as textiles, which remain exposed to global trade disruptions and tariff-related uncertainties.
Public sector banks continued to gain ground over private lenders during the period. PSBs expanded their share in incremental credit and increased their overall presence in outstanding bank credit.
This growth was supported by stronger rural lending and sustained MSME demand. Importantly, asset quality at PSBs improved further, with a decline in gross non-performing assets, indicating better underwriting and enhanced risk management practices, even as write-offs remained lower than those seen at private banks.
The report also points to a noticeable improvement in rural and semi-urban credit demand.
The share of these regions in incremental lending rose, while the contribution from metropolitan centres declined, signalling a broader-based recovery beyond large cities.
Public sector banks played a leading role in this shift, with a much larger portion of their loan portfolios concentrated in rural and semi-urban markets compared with private banks.
On the corporate side, Crisil observed a moderation in high-ticket industrial loans, suggesting subdued capital expenditure activity.
Large corporations continued to rely on internal cash flows, supported by healthy balance sheets, while geopolitical uncertainties and evolving global trade conditions weighed on fresh investment decisions.
As a result, credit demand increasingly tilted towards working capital requirements rather than long-term project financing.
Within retail lending, the ticket-size mix shifted upward, especially in housing finance, reflecting higher property values and growing demand for larger homes.
In services, high-value loans declined, partly due to lower exposure to NBFCs following regulatory changes, although recent trends indicate a gradual recovery in bank lending to the sector.
Overall, Crisil said the evolving credit mix – marked by stronger secured lending, rising MSME exposure, improving rural traction and better asset quality—positions the banking system to remain resilient in the near term.
However, it cautioned that external risks, including global trade volatility and sector-specific stress pockets, will remain key factors to monitor as banks balance growth with prudence.
. SAS PRP