Corporate Loan: After a slow and cautious start to FY26, India’s corporate credit cycle is finally showing signs of a meaningful revival. Recent bank earnings, RBI data, and policy signals from the Union Budget 2026 suggest that corporate lending is gaining momentum, supported by improving macro conditions, a renewed push for MSME financing, and higher government capital expenditure. What began as a sluggish year for corporate credit is now shaping into a phase of steady recovery, with banks increasingly confident about sustaining double-digit growth.
Corporate Credit Growth Gathers Pace
Corporate loan growth, which remained muted in the early part of FY26, has picked up noticeably over the past two quarters. The country’s largest public sector lender, State Bank of India (SBI), reported a 13.4% year-on-year growth in corporate advances in Q3FY26, a sharp improvement from the 5.7% growth recorded in Q1FY26. This acceleration reflects improving demand from corporates as well as growing confidence among lenders.
SBI Chairman CS Setty has indicated that the bank expects double-digit growth in corporate loans to continue in the coming quarters. Backing this optimism, SBI has upgraded its FY26 loan growth guidance to 13–15%, from the earlier 12–14% range. The revised outlook is supported by progress in trade deal negotiations with the United States and the European Union, along with policy clarity and fiscal support announced in the Union Budget 2026.
Private Banks Join the Lending Revival
Private sector banks, which had also seen weak corporate credit growth at the start of the year, are now reporting significantly stronger numbers. Axis Bank emerged as a standout performer, posting a 27% year-on-year growth in its corporate loan book in Q3FY26, a dramatic jump compared to just 4% growth in the same quarter last year. Axis Bank’s corporate lending growth trajectory has steadily improved from 9% in Q1FY26, highlighting rising corporate borrowing appetite.
HDFC Bank, India’s largest private lender, also reported a notable improvement. Its corporate advances grew by around 10% year-on-year, compared to a modest 1.7% growth at the start of FY26. Kotak Mahindra Bank posted close to 7% growth in Q3FY26, up from 5% in the first quarter.
Not all lenders followed the same trend, however. ICICI Bank stood out as an exception, reporting 5.6% growth in corporate loans in Q3FY26, slightly lower than the 7.5% growth recorded in Q1FY26. Despite this, the broader trend across the banking sector points towards improving corporate credit momentum.
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Budget 2026 Gives a Strong Push to MSMEs
A key driver behind the improving corporate loan outlook is the Union Budget 2026, which placed strong emphasis on the micro, small, and medium enterprises (MSME) sector. Finance Minister Nirmala Sitharaman announced a comprehensive three-part framework to strengthen MSME financing, including:
- A Rs 10,000-crore SME Growth Fund
- A Rs 2,000-crore top-up for the Self-Reliant India Fund
- Additional measures to improve credit access and liquidity for small businesses
Although the banking sector did not receive direct incentives in the Budget, analysts see these MSME-focused measures as an indirect boost to banks. MSMEs form a significant portion of banks’ lending portfolios, particularly for public sector banks. Improved liquidity, credit guarantees, and funding support for MSMEs can reduce stress on banks’ balance sheets and free up capacity for larger corporate lending.
A banking analyst noted that MSMEs have long been a targeted segment due to government policy priorities. With the new measures in place, the lending burden on banks is expected to ease, allowing them to pursue more lending opportunities in capital-intensive sectors.
Public Sector Banks Benefit from MSME Stability
Public sector banks (PSBs), which are heavily exposed to MSMEs, stand to gain significantly from the policy push. Along with SBI, other large PSBs have reported improving corporate loan growth. Bank of Baroda (BoB) and Punjab National Bank (PNB) both posted over 8% growth in corporate loan disbursals in Q3FY26, compared to around 4% and 7% respectively at the start of the financial year.
Historically, PSBs have faced challenges due to supply chain disruptions and loan defaults among MSMEs. With enhanced credit facilities and improved liquidity support, banks can now rebalance their portfolios and increase exposure to larger corporates and infrastructure-linked sectors.
RBI Data Confirms the Trend
The Reserve Bank of India’s latest sectoral credit data reinforces the revival narrative. According to the RBI, credit to industry grew by 13.3% as of December 2025, nearly double the 7.4% growth recorded in December 2024. While loans to micro and small enterprises showed strong expansion, credit to medium and large industries also accelerated.
Sectors such as engineering, metals, chemicals, and textiles have seen improved access to credit, indicating a broader recovery in industrial activity. This diversification in lending reduces concentration risk and supports a healthier corporate credit cycle.
Capex Push and New Lending Avenues
Another major tailwind for corporate lending is the government’s aggressive capital expenditure plan. The Centre has announced a capital expenditure target of Rs 12.2 lakh crore for FY27, marking an 11.7% increase over the revised estimates of the previous year. Higher public capex typically crowds in private investment, creating fresh demand for bank financing.
Additionally, the definition and scope of capital expenditure are evolving. Banks are increasingly lending to new-age sectors such as data centres, renewable energy, digital infrastructure, and technology-driven businesses. Regulatory easing has also opened doors for lending to REITs, creating newer avenues for corporate credit growth.
As one analyst observed, the corporate credit cycle had remained subdued for years due to weak private capex and corporate deleveraging. Many companies had turned to equity markets and alternative funding sources instead of bank loans. Now, with stronger balance sheets, supportive regulations, and improving economic visibility, both banks and corporates are more comfortable returning to traditional lending channels.
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Conclusion
The revival in corporate lending appears increasingly sustainable as FY26 progresses. Stronger bank earnings, supportive Budget 2026 measures for MSMEs, improving RBI credit data, and a renewed government capex push are collectively reshaping the corporate credit landscape. While challenges remain, particularly in ensuring efficiency and consolidation among PSBs and NBFCs, the outlook for corporate loans has clearly improved.
If current trends hold, India could be entering a healthier and more balanced corporate credit cycle—one driven not just by consumption or retail loans, but by productive investment across industries that can support long-term economic growth.
