Corporate credit begins to make a comeback in Q3

Bank lending to India Inc seems to be making a comeback after several quarters. For the 13 banks, who have declared their third quarter results, the average lending growth to the corporate sector has hit double digits – 10.6% on year — much higher than the 8% growth for the same set of banks in the second quarter. The growth in the few earlier quarters were far more subdued, with the first quarter of FY26 hitting a low of 3.7%.

Among large private sector banks, HDFC Bank reported a 10.3% year-on-year rise in corporate advances, while ICICI Bank and Kotak Mahindra Bank posted growth of 5.6% and 7.2%, respectively. These trends indicate stable demand from highly rated corporates, driven largely by working capital needs and short-tenor borrowings rather than aggressive balance sheet expansion.

The more notable shift, however, is visible among mid-sized and PSU banks, which are seeing sharper acceleration. Central Bank of India recorded a 23.2% year-on-year increase in corporate advances, while Bank of Maharashtra and RBL Bank posted growth of 14.5% and 16.5%, respectively. Bank of India and Federal Bank also reported double-digit growth, underlining that the pickup in corporate credit is becoming increasingly broad-based.

Bank management commentary suggests that the current revival is being driven by a mix of working capital requirements and term loans. Prashant Kumar, managing director and chief executive officer of YES Bank, said demand in commercial banking is improving across both segments.

“Now, in commercial banking, I think fundamentally we are seeing more in terms of the working capital, but there is good demand coming from term loan also. So, it’s a bit of both, and this is one area where there are opportunities and we would like to grow also,” Kumar said during the bank’s post-earnings call.

Bond Market Push

Sachin Sachdeva, vice president – Financial Sector Ratings, ICRA points at a more practical reason for this rise.  “Bond yields remain elevated, making it expensive for corporates to borrow in the bond market,” he said. 

He added further that higher global yields and weaker domestic currency has made funding via ECB uncompetitive. This made bank loans comparatively cheaper than bonds, drawing corporate demand their way. Moreover, Q3 also benefited from strong festival demand and sales, increasing working capital utilisation. 

PSU banks, in particular, are beginning to see stronger visibility on future corporate credit growth. Rajneesh Karnatak, managing director and CEO of Bank of India, pointed to a healthy pipeline of corporate loans that are either sanctioned or close to disbursement.

“We have a pipeline of nearly around Rs 80,000 crore on the credit side, which is due for either final sanction or sanction has happened, documentation is taking place and it is due for disbursement. Out of which corporate group accounts for Rs 60,000-65,000 crore,” Karnatak said, adding that visibility extends into the next financial year.

From Warehousing to Wind

He also highlighted increasing diversification in demand, with sanctions across data centres, warehousing, green energy—including solar and wind—battery manufacturing and electric vehicle-related projects.

Bank of Maharashtra said that they will expand into newer and more profitable segments such as green financing, renewable energy projects, data centres and EV-related financing, while maintaining a strong focus on risk assessment and return metrics.

Despite the improving outlook, banks continue to stress that corporate lending remains highly selective. Ajay Kumar Srivastava, managing director and CEO of Indian Overseas Bank, said corporate loans are pursued cautiously, with a strong emphasis on pricing discipline and credit quality.

“For us, corporate lending is done through a limited number of branches, and we are very selective about onboarding customers. The focus is on good corporates with strong ratings and proper pricing. We are not in the business of lending at 6% or 6.5%,” Srivastava said during the post-earnings call.

He added that Indian Overseas Bank intends to maintain a stable portfolio mix, with retail, agriculture and MSME loans accounting for about 75–76% of total advances, while corporate exposure remains in the range of 23–25%.

Sachdeva added that lending to NBFCs has picked up in October-November with incremental credit growth to the same boosting some banks’ Q3 corporate growth. He expects corporate loan growth to sustain in the short-term as bond yields are expected to remain elevated, however, muted private capex will impact long-term corporate book growth.