India's Private Lenders Accelerate Growth Amid Corporate Loan Revival

India's leading private banks are actively focusing on a corporate loan revival for growth, having reported significant increases in their corporate credit portfolios during the first quarter of the fiscal year (April-June). Companies are increasingly opting for more affordable bank loans, moving away from the higher borrowing costs prevalent in the bond market. This trend signals that the banking sector is entering a new growth phase after years of cleaning up bad loans and strengthening capital buffers.

During this period, HDFC Bank Ltd. saw its corporate loans jump by nearly 19%, a remarkable acceleration compared to the 1.7% growth recorded a year earlier. ICICI Bank Ltd.'s domestic corporate book expanded by 18.5% year-on-year, while Kotak Mahindra Bank Ltd. reported a 15% increase. Yes Bank Ltd., which has historically focused on retail lending, witnessed its corporate and institutional loan portfolio surge by over 41%. This surge is partly driven by bond yields climbing above 7% after the US-Iran war, making market borrowing expensive and pushing companies towards bank financing. An anticipated inflow of over $50 billion in foreign currency deposits under a concessional swap window by the Reserve Bank of India (RBI) is also bolstering banking system liquidity and supporting lending appetite.

Across the banking sector, robust profit growth, improving asset quality, and expanding margins have been observed. The sector's gross non-performing asset ratio is near multi-year lows, giving lenders confidence to grow their corporate books without repeating the excesses that led to the bad-loan cycle of the last decade. Analysts rate ICICI Bank as the strongest pick for growth-quality, while HDFC Bank is viewed as a long-term, defensive compounder. Yes Bank, meanwhile, is considered a high-risk turnaround play.

This development reflects a broader strengthening of the Indian economy and indicates a potential shift in corporate financing structures. The country's economy has maintained strong growth momentum despite geopolitical uncertainties. However, deposit growth lagging credit growth remains a key concern for banks in terms of liquidity management. Steps taken by the Reserve Bank of India, such as offering full hedging-cost support for foreign currency deposits in June, are helping to alleviate these funding pressures.

Analysts and market expectations suggest that this corporate loan revival is likely to continue in the foreseeable future. Yes Bank CEO Vinay Tonse expressed expectations for "secular loan growth across sectors" in the remaining quarters of the fiscal year. Corporate treasurers are anticipated to continue favoring bank loans due to elevated bond yields and geopolitical uncertainty. However, rating agency ICRA projects that bank credit growth may moderate to 11.0-11.7% in fiscal year 2026-27 due to heightened geopolitical uncertainties and evolving interest rate dynamics. Nevertheless, this level is still considered healthy and demonstrates the resilience of the Indian banking sector.