Credit growth to stay muted in FY26, says Macquarie’s Suresh Ganapathy

Credit growth in India is likely to remain subdued in financial year 2026, according to Suresh Ganapathy, Managing Director and Head of Financial Services Research at Macquarie Capital.He expects credit growth to be around 11%, similar to the levels seen in FY25.

“I am not very convinced that these lower rates will spur credit growth,” Ganapathy said. He added that based on Macquarie’s analysis of the past 15 years, the link between interest rates and credit growth in India is weak. “The correlation between credit growth and interest rates in India is totally non-existent. In fact, it is all over the place.”

Ganapathy explained that many of the key triggers for strong credit growth are currently missing. “The bulk of the loan book is corporate book, and you have seen the amount of equity raising, the promoter sell-down, and all kind of cash which has been raised by the corporates, and the corporates continue to deleverage. So that section of the credit growth is missing.”He also pointed out that banks have become more cautious on unsecured loans. “Banks have already tightened the filters. Now they are not going to relax the filters, so the filtering criteria will still remain quite stringent.”

As a result, Ganapathy expects no major improvement in credit growth.

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On the performance of banks in the upcoming quarter, Ganapathy believes both public sector and private banks will show weak earnings due to margin pressures.

He noted that loan growth will also remain slow. “Loan growth in general will be weak, while PSUs may have a slightly better loan growth, but the system level itself, being 9.50% means you are really talking about quite a sluggish loan growth performance.”

Among mid-cap banks, Ganapathy highlighted City Union Bank as a standout. “The only bank that we cover is clearly a City Union Bank, and clear positive on the name. Valuations are attractive. The ROA is pretty decent at 1.4-1.5%.”

Among mid-cap banks, Macquarie Capital sees City Union Bank as a strong pick due to its attractive valuation and stable return on assets in the range of 1.4–1.5%.

In the NBFC space, AB Capital and Shriram Finance are expected to perform well. Shriram Finance is likely to post flat quarter-on-quarter numbers, which is considered a steady outcome for the period.

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