Indian banks are seeing a clear shift as corporate lending, driven by energy and infrastructure, grows faster than retail loans. While sectors like renewables are driving demand, retail segments like auto and housing are cooling off. Investors should watch how this change in loan mix and rising funding costs affect bank profit margins in the coming quarters.
Indian banks are undergoing a significant shift in their lending strategy for the quarter ending June 2026. After a long period where retail loans—such as personal and housing loans—led the growth, the trend has reversed. Data indicates that corporate credit is now growing faster than retail, marking a pivot back to business lending.
The demand for corporate loans is largely coming from capital-intensive sectors like renewable energy, power infrastructure, and data centers. As these industries expand, their need for large-scale funding has increased, providing a steady stream of credit demand for banks. For instance, Axis Bank reported a strong 38% growth in its corporate loan book, reflecting this broader industry trend where corporate credit expansion for many banks has ranged between 10% and 18% year-on-year.
In contrast, the retail lending segment, which had been the primary engine of growth for many lenders, has moderated to a growth rate of 7% to 12% for most major banks. State Bank of India (SBI) noted a 15% growth, which remains a notable outlier, but generally, banks are seeing slower demand for housing and auto loans. Several factors are contributing to this cooling, including aggressive competition on pricing for auto loans and a more cautious approach from banks regarding unsecured lending, such as personal loans and credit cards.
While the broader retail category is slowing, one specific segment continues to show high growth: gold loans. These loans have seen a significant increase, emerging as a bright spot in bank portfolios even as other retail segments face headwinds. However, this shift in the loan book towards corporate lending, combined with a slowdown in unsecured retail loans, presents new challenges for bank profitability.
Banks are currently dealing with pressure on their profit margins, partly due to a shift in their funding mix. Low-cost current and savings account (CASA) deposits are becoming harder to secure, forcing banks to rely on more expensive term deposits to fund their lending activities. As the cost of gathering these deposits rises, banks may face continued pressure on their net interest margins, which measure the difference between the interest earned on loans and the interest paid on deposits.
For investors, the key monitoring point will be how these banks manage the trade-off between safer corporate loans and the higher-margin, but riskier, retail loans. Additionally, as banks increase their exposure to corporate and infrastructure sectors, the ability to maintain asset quality and prevent a rise in bad loans will be a critical factor to track in upcoming quarterly results.