13

Oct

Corporate Credit Hits ₹69 Lakh Crore: Can a Rate Hike Rescue Banks?

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Prof. Shivaji Sarkar

New Delhi I Tuesday I October 13, 2026


India’s banking sector faces a growing dilemma. Corporate credit has surged to nearly ₹69.22 lakh crore, locking substantial funds into large and often long-term loans, while household savings are increasingly moving towards mutual funds and equities. The Reserve Bank of India’s latest interest-rate increase may offer some relief to banks, but it is unlikely to resolve their deeper structural problems.
The RBI raised the repo rate by 25 basis points to 5.50 per cent on October 7, 2026, its first increase since February 2023. After a period of rate cuts and a prolonged pause, the move signals a shift towards calibrated monetary tightening. It reflects concerns over inflation, currency volatility and external uncertainties.
Global geopolitical tensions, instability in energy markets, fluctuations in the rupee and a potentially weak monsoon have added to economic uncertainty. A sharply depreciating rupee could also raise the cost of imports, adding to inflationary pressures. Higher interest rates, meanwhile, could make home, automobile and personal loans more expensive as banks pass on increased borrowing costs.
The RBI’s decision, however, is not an immediate remedy for the banking sector. Its effects will depend on how lending rates, deposit costs, credit demand and loan quality respond.
The Corporate Credit Burden
Outstanding corporate credit rose from ₹63.19 lakh crore in 2024–25 to approximately ₹69.22 lakh crore in 2025–26. Loans to large industries alone stood at around ₹32.3 lakh crore, reportedly registering annual growth of 17.7 per cent amid renewed investment in infrastructure, manufacturing and green energy.
Major borrowers include Reliance Industries, the Adani Group, Tata Steel, JSW Steel, Bharti Airtel and Vedanta. Their requirements span energy, telecommunications, steel, infrastructure, ports, airports and industrial expansion. Large projects require substantial financing, often over long periods.
The State Bank of India, the country's largest public-sector lender, had a corporate loan book of approximately ₹14.24 lakh crore in March 2026. Large-ticket loans of ₹100 crore or more account for a substantial share of the banking system's outstanding credit.
High corporate bond yields have also encouraged some companies to turn back to conventional bank borrowing. This increases banks' exposure to large borrowers and ties up capital that could otherwise support smaller businesses and individual customers.
Corporate lending is essential for economic growth. The concern is not the size of these loans alone, but their concentration, repayment prospects and the risks they impose on banks.
When Big Loans Become a Liability
Banks face a fundamental mismatch when they use deposits that customers may withdraw at relatively short notice to finance projects requiring decades to repay. Long-term infrastructure loans are not necessarily problematic if they generate adequate returns and are repaid on schedule. But delayed projects, weak cash flows and corporate defaults can put severe pressure on lenders.
Non-performing assets (NPAs) compound the problem. When a large borrower defaults, banks must make provisions against possible losses, reducing profits and tying up regulatory capital. A substantial default can seriously damage quarterly earnings and restrict fresh lending.
Under RBI rules, banks must maintain capital commensurate with the risks of their loans. Heavy exposure to large corporate accounts can therefore limit their capacity to extend additional credit, including to micro, small and medium enterprises (MSMEs). Smaller borrowers may offer better lending margins, but they cannot obtain credit unless banks have sufficient funds and capital.
The burden of bad corporate lending ultimately extends beyond bank balance sheets. Over the past 12 financial years, banks have reportedly written off nearly ₹10 lakh crore in loans to large corporates and service-sector borrowers.
A write-off removes a loan from the bank's active balance sheet for accounting purposes; it does not automatically mean that the debt has been recovered or the borrower has been absolved of repayment. Actual recovery may be substantially lower than the amount owed, particularly in prolonged insolvency proceedings.
The consequences are especially troubling when banks must protect their balance sheets while competing for deposits. Household savings are increasingly finding their way into market-linked investments, forcing banks to offer more attractive deposit rates. This raises their funding costs and puts pressure on lending margins.
Will Higher Rates Help?
A repo-rate increase can have mixed consequences. Banks may benefit if lending rates rise faster than deposit costs, improving their interest margins. Tighter monetary conditions could also moderate excessive credit expansion and encourage greater scrutiny of large corporate loans.
But the opposite is possible. If banks have to raise deposit rates to attract funds while borrowers become reluctant to take fresh loans, profitability may suffer. Higher borrowing costs could slow demand for housing, automobiles and other consumer credit, as well as discourage investment by businesses.
Nor does a rate hike automatically reduce NPAs or release capital trapped in stressed corporate accounts. These problems require stronger credit appraisal, effective monitoring of large borrowers, timely resolution of insolvency cases and better recovery mechanisms.
The RBI's stated commitment to price and financial stability, alongside liquidity management to contain excessive rupee volatility, is important. Yet monetary tightening alone cannot compensate for weaknesses in banking governance, risk management or the concentration of credit.
The Larger Challenge
India's banks must balance the financing needs of large industries with the credit requirements of MSMEs, households and other productive sectors. Corporate investment is indispensable, but an excessive concentration of lending can expose banks to systemic risks and restrict the flow of credit to smaller enterprises.
The latest rate increase may provide a limited cushion if it improves lending margins and tempers unsustainable credit expansion. However, it should not be mistaken for a revival strategy in itself.
A healthier banking system requires more than higher interest rates. It needs sound lending decisions, adequate capital, better recovery of bad loans, a stable deposit base and fair access to credit. Without these safeguards, the costs of corporate lending failures will continue to fall disproportionately on banks, smaller borrowers and, ultimately, ordinary depositors.

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