The Indian banking sector is witnessing a resurgence in corporate credit growth, driven primarily by working capital financing and project-linked funding. According to senior bankers, the uptick is modest, but it marks a turn for lenders such as HDFC Bank and Axis Bank, which had earlier slowed their wholesale book due to competitive loan pricing. HDFC Bank’s corporate and other wholesale loan book grew 6.4% year on year and 4.7% on quarter, while Axis Bank’s corporate loan book expanded 20% on year and 11% on quarter.
The pickup in corporate credit comes as yields on government securities have risen, making bank loans more attractive for corporates, especially low-rated ones. The weighted average lending rate on fresh rupee loans of scheduled commercial banks was at 8.75% in August, down from 8.81% a month earlier, making it cheaper for corporates to borrow. Bankers agree that while capex-led demand remains modest, working capital financing and project-linked funding are driving incremental growth.
Public sector banks, such as Punjab National Bank and Bank of India, have also joined the lending rebound, buoyed by a healthy project pipeline and improved corporate balance sheets. Punjab National Bank has total loan sanctions worth ₹1.78 trillion, which are awaiting phased disbursements, while Bank of India reported double-digit growth of nearly 12% on year in its corporate book in Q2.
However, pricing remains a challenge, with corporates seeking loans at unrealistically low rates. Indian Overseas Bank chief executive Ajay Kumar Srivastava said that the issue is not demand, but pricing, as corporates seek loans at around 6%, which is not viable for the bank given its own funding costs. Despite this, the bank has a ₹15,000 crore sanctioned pipeline and expects 12-13% on year growth in its corporate loan book this year, led by manufacturing and PLI-linked sectors.
Overall, the sector-wide uptick in corporate credit growth is expected to strengthen in the coming quarters as sanctioned loans move to disbursement stage and investment activity gradually picks up. Ratings agency Icra has not revised its credit growth estimates for FY26 yet, but expects the cuts in goods and services tax rates to support credit expansion for banks and NBFCs in the near term.