A new FICCI-IBA survey reveals that 61% of banks see geopolitical and supply-chain issues, rather than interest rates, as the main barrier to private business investment. Despite this caution, banks remain optimistic, expecting industrial credit to grow over 9% and services sector credit to exceed 13% in the next six months.
Indian banks suggest that global uncertainty, rather than high interest rates, is the main factor holding back private companies from spending on large new projects. The latest survey by the Federation of Indian Chambers of Commerce & Industry (FICCI) and the Indian Banks’ Association (IBA) found that 61% of bankers identify geopolitical tensions and supply-chain instability as the biggest obstacles to long-term capital investment. This suggests that even if interest rates stabilize or fall, companies may remain cautious if the global environment remains unpredictable.
Caution in Public Sector Lending
The survey, which covered 22 banks representing 78% of the country’s total banking assets, revealed a divide in how different lenders view the market. Public sector banks are notably more cautious, with 75% of them citing international instability as the primary reason they are careful about lending for large capital projects. This is a relevant detail for investors, as public sector banks hold the majority of corporate loans in India. Their cautious stance could mean that funding for massive, long-term industrial projects may not pick up as quickly as some had anticipated.
Credit Growth Remains Strong
Despite the hesitation surrounding big-ticket investments, the overall demand for credit remains healthy. Nearly 95% of banks surveyed expect industrial credit to grow by more than 9% over the next six months. This growth is being driven by sectors such as infrastructure, engineering, and automotive, which continue to need loans to support their ongoing manufacturing and daily business operations.
The services sector is seeing even stronger demand. Half of the banks surveyed expect credit growth for services to exceed 15% in the coming months, with the broader sector projected to grow at over 13%. This indicates that while companies may be hesitant to start brand-new, multi-year projects due to global risks, they are still borrowing money to run their current businesses and expand their service capabilities.
For investors, the takeaway is that the Indian banking system is still finding growth in operational credit, even if long-term industrial expansion is slow. The next important trend to monitor will be whether global geopolitical conditions stabilize, which could potentially unlock the postponed private investment, or if the current caution persists, keeping long-term capital spending moderate.