Corporate loan revival in sight as Budget 2026 measures spur growth

The country’s largest public sector bank, SBI, reported a 13.4% growth in corporate advances in Q3FY26. For context, in Q1FY26, SBI’s corporate loan book grew only a mere 5.7%.

• SBI raises FY26 loan growth forecast to 13-15% as corporate credit revives.
• Union Budget 2026 boosts MSMEs with Rs 10,000 crore SME Growth Fund
• RBI reports 13.3 percent industry credit growth as of December 2025

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Corporate credit growth, which had started out sluggish in the beginning of the fiscal year 2026, is seeing a gradual revival in the last few months, with State Bank of India’s (SBI) chairman CS Setty flagging that a double-digit growth in the corporate loan segment will be sustained in the coming quarters. SBI upgraded its FY26 loan growth guidance to 13-15%, from 12%-14% earlier, citing the recent trade deal negotiations with the United States (US) and European Union (EU), and the recent Union Budget announcements.

Among the large private banks which have reported their third quarter results, Axis Bank outpaced the others with a 27% year-on-year rise in its corporate loan book, as compared to a meagre 4% growth in the previous corresponding period. What started as a 9% growth in the first quarter of FY26, has now risen significantly in the subsequent quarters of the financial year. Moreover, the country’s largest private bank, HDFC Bank, posted about a 10% annual growth in corporate advances, increasing from just 1.7% at the start of FY26.

Another major private bank, Kotak Mahindra, reported a near 7% growth in the third quarter, up from 5% in the first quarter of the year. Meanwhile ICICI Bank was among the few aberrations, which reported a 5.6% growth in the third quarter for corporate loans down from 7.5% in Q1 FY26 .

Amidst the revival in momentum in corporate loans, the micro, small, and medium enterprises (MSME) sector has now received a major boost from the Union Budget 2026.

MSMEs were in for a treat last week, when Finance Minister Nirmala Sitharaman announced measures to lift up the sector. A three-part framework was introduced by FM Sitharaman, as part of the Union Budget 2026, including a Rs 10,000-crore SME Growth Fund, a Rs 2,000 crore top-up for the Self-Reliant India Fund, among other measures to prop up the sector.

While the key allied sector - banking - did not receive much attention during the Union Budget 2026, measures taken to strengthen and improve the MSMEs is seen as an indirect push to the banking sector. That said, the government will commission a high-level committee to review the sector as part of the Viksit Bharat 2047 mission, in order to assess the operations and functioning of the broader banking system.

“MSMEs generally have been a targeted segment also because of the government's push. Now, with these measures, the burden (to lend to these MSMEs) can now finally come down,” according to a banking analyst, who did not want to be named, as they were not authorized to talk to the media.

MSME push may lift corporate loan outlook

The country’s largest public sector bank, SBI, reported a 13.4% growth in corporate advances in Q3FY26. For context, in Q1FY26, SBI’s corporate loan book grew only a mere 5.7%.

Other large public banks such as Bank of Baroda (BoB) and Punjab National Bank (PNB) posted more than 8% growth in corporate loan disbursals in the third quarter of the fiscal year 2026. Comparatively, in the beginning of the financial year, both banks posted a near 4% and 7% growth respectively.

The RBI’s latest report for sectoral credit also reflects the sentiment, showing a 13.3% growth in credit to industry, as of December 2025, as compared to 7.4% as at the end of December 2024. While loans to micro and small enterprises showed a sharp growth, credit to medium and large industries also accelerated during the period, according to the RBI report. Large industries here include engineering, metals, chemicals, textiles, among others.

Public sector banks, where MSMEs are often their biggest customers, often face disruptions due to supply chain disruptions and loan defaults by these enterprises. With the government looking to enhance credit facilities and easing liquidity conditions for these enterprises, banks can now focus on allocating more loans for corporates which are looking to borrow from financial institutions.

“The PSU Banks and NBFCs are too fragmented and often operate way below efficiency levels,” said Deepraditya Datta , Founder of Venator Search Partners, an executive research firm.

Now, it also helps that the government has announced a capital expenditure target of Rs 12.2 lakh crore for the fiscal year 2027, a 11.7% rise from the previous fiscal year’s revised estimates. This could now mean that more banks will have the opportunity to ramp up lending to more sectors which are capital intensive.

The fact that what is reckoned as capital expenditure is also set for a change is likely to further push the envelope on the corporate loan book front. “The kind of corporates that they're lending to, there's a lot of focus on newer technology, data centres, renewables, etc. Lending to REITs is also getting allowed. So all these are becoming newer avenues for banks to lend to,” the above quoted banking  analyst added.

“Over the years, the corporate credit cycle was not building up. Private sector capex was not happening. That was impacting the overall corporate credit growth. And then, the corporates themselves were deleveraging and going towards other fund-raising routes. Now banks are getting more comfortable with lending and regulations are also supportive,” the analyst said.