Is India’s Credit Boom Sustainable? Why Banks Are Raising ₹2.5 Lakh Crore in FY27
Introduction:
FY27 may become one of the most important capital-raising years for India’s lending sector. At first glance, the numbers look large: banks are lining up equity, AT1, Tier-II and infrastructure bonds; NBFCs and housing financiers are preparing sizable borrowing programmes. But the more interesting point is this: the fundraising is not coming from a place of panic. It is coming at a time when asset quality is strong, credit growth is healthy, and lenders are preparing balance sheets for the next leg of expansion.
Key Indicator of the Banking System:
The sector's key indicators are supportive. As per RBI’s Financial Stability Report, Indian banks’ gross NPAs and Net NPAs declined to a decadal low of 1.8% and 0.40%, respectively, as of March 2026. Even the slippage ratio also decadal low level of 1.2%.
Financial Strength of the Banking System over the years
Source: RBI Financial Stability Report June 2026
Credit Growth:
Credit growth is also showing strength: non-food bank credit grew 17.4% YoY as of the fortnight ended May 31, 2026, compared with 8.8% YoY a year earlier; industry credit grew 17.5% YoY, while agriculture credit grew 14.9% YoY. The combination—cleaner balance sheets plus stronger credit demand.
Fund-Raising Plans by Banks & NBFCs:
The fundraising plans as preparation for growth, regulatory capital, infrastructure lending and balance-sheet resilience—not as distress financing.
Banks/NBFCs: capital buffers, infra bonds and growth readiness
|
Banks/NBFCs Name |
Expected fund raise during the FY27 |
|
State Bank of India |
Up to ₹60,000 crore through debt instruments |
|
HDFC Bank |
Up to ₹60,000 crore through perpetual debt instruments, AT1/Tier-II bonds. |
|
Canara Bank |
Up to ₹8,500 crore through debt instruments; ₹4,500 crore through AT1 bonds and ₹4,000 crore through Tier-II bonds during FY27. |
|
Bank of Maharashtra |
Up to ₹7,500 crore by way of equity capital and up to ₹10,000 crore through long-term infrastructure bonds and a foreign currency bond of $500 million. |
|
Central Bank of India |
FY27 capital raising plan aggregating to ₹7,000 crore through further public offer, QIP, right issue, or through AT1/ tier II bonds. |
|
Union Bank of India |
Plan to raise up to Rs. 3,000 crores through further public offer, QIP or right issue and raise up to Rs. 5,000 crores through AT1 bonds & Tier-II bonds. |
|
LIC Housing Finance |
Borrowing budget aggregating to ₹1,27,000 crore for FY27 through loans and/or redeemable debt instruments. |
|
Manappuram Finance |
Borrowing programme for FY27 through redeemable NCDs up to ₹7,400 crore, by private placement and/or public issue in tranches. |
|
AU Small Finance Bank |
Capital raise up to Rs. 7,500 crore through QIP or preferential allotment and raise up to Rs. 6,000 crore through bonds or non-convertible debentures. |
Source: Companies’ stock exchange filings & investor presentations.
Business update from lender for Q1FY27:
|
Banks/NBFCs Name |
Net/ Gross Loan & Advances as of 30 June 2026 (₹ in Crores) |
Growth on YoY |
Growth on QoQ |
|
HDFC Bank |
30,61,000 |
15.4% |
3.4% |
|
Axis Bank |
12,72,900 |
18.8% |
2.3% |
|
Kotak Mahindra Bank |
5,12,171 |
15.1% |
3.2% |
|
IDFC First Bank |
3,05,488 |
20.6% |
5.2% |
|
Bank of Maharashtra |
3,06,000 |
27.0% |
4.7% |
|
Bajaj Housing |
1,31,150 |
24.0% |
6.0% |
Key Risks:
Deposits Growth:
For all scheduled commercial banks, credit growth stood at around 14.5% YoY as of March 2026, while deposit growth was lower, around 11.5% YoY. The chart also shows the gap between credit and deposit growth at about 3% by March 2026.
India’s banking system is strong, but the credit-deposit gap is an important monitorable. Credit demand is healthy, asset quality is strong, and banks have capital/liquidity buffers. However, if deposits continue to lag loans, banks may face pressure on the cost of funds, NIMs, liquidity buffers, and profitability.
Inflation Pressure & El Niño Impact:
While headline inflation remained below the 4% target in early 2026 (3.5% in April). However, significant divergence has emerged: while CPI remains contained, WPI inflation spiked to 8.3% in April 2026. This massive gap represents a latent risk, as the eventual passthrough of these input costs into core inflation appears increasingly likely. Since May 2026, retail fuel prices have risen—petrol by 7.4% and diesel by 8.4%—contributing approximately 36 basis points to headline CPI. Input costs for industrial materials, chemicals, rubber, and plastics have also increased, indicating potential upward pressure on inflation in the coming months.
Also, the inflation outlook was subject to upside risks from uncertainty over the spatial and temporal distribution of the south-west monsoon and El Niño conditions. RBI cited that the IMD had forecast the south-west monsoon at 90% of the long-period average.
The Key Takeaway for the Investors:
FY27 could be a strong year for India’s lending sector because the macro setup is favourable: asset quality is near historic best levels, credit growth has re-accelerated, and lenders are pre-approving capital and borrowing plans before the cycle fully stretches their balance sheets.
The signal is powerful. India’s banks and NBFCs are not merely raising money; they are positioning for the next phase of financial-sector growth. However, as an investor, one will have to keep an eye on some key factors like NIMs trajectory, deposit growth, credit growth and asset quality of the lenders.
