New Delhi [India], July 9 (ANI): Bank credit growth is expected to moderate gradually in FY27 as large companies increasingly shift to bonds and overseas borrowings, aided by the Reserve Bank of India's recent measures that have reduced the cost of overseas borrowings, according to a CareEdge BFSI Research report.

The report said overall credit demand is expected to remain healthy, but banks are likely to account for a smaller share of corporate funding as market-based sources become more attractive.

'Bank credit growth is expected to moderate gradually as funding preferences increasingly shift towards market-based sources,' the report said.

According to the report, the RBI's recent policy measures have improved banks' funding position while also making overseas borrowing more attractive for large borrowers. 'The RBI's measures to encourage FCNR(B) deposits are expected to strengthen banks' liability profile by improving deposit mobilisation and funding availability,' it said. At the same time, 'lower hedging costs for eligible ECB borrowers, together with softer G-sec yields, are expected to encourage greater use of ECBs and domestic debt markets by large borrowers, reducing their reliance on bank borrowings.'

Explaining the impact of the RBI's forex swap facility, the report said it has reduced the effective hedging cost for eligible borrowers from around 2.8 per cent to a fixed 1.5 per cent, lowering the overall cost of overseas borrowing and making External Commercial Borrowings (ECBs) more attractive for infrastructure companies, power sector entities, public sector undertakings and large non-banking financial companies (NBFCs).

CareEdge also expects improving domestic bond market conditions to support the shift away from bank funding. 'Lower benchmark yields are expected to reduce borrowing costs in the domestic debt market, encouraging NBFCs and large corporates to increasingly access bonds and NCDs for incremental funding requirements,' the report said. As a result, 'a larger share of financing requirements is likely to be met through ECBs and domestic debt markets rather than bank borrowings.'

Despite the expected moderation, the report said bank lending remains strong. Non-food bank credit grew 17.4 per cent year-on-year in May 2026, supported by broad-based growth across industry, services, agriculture and retail lending. The services sector led the expansion with 20.4 per cent growth, driven by robust lending to NBFCs, while industrial credit rose 17.5 per cent on higher borrowing by large corporates, MSMEs and infrastructure-related sectors. Personal loan growth remained resilient at 15.4 per cent, supported by vehicle finance and gold loans.

The report noted that the recent surge in bank lending was partly due to weaker activity in debt markets, which pushed companies towards bank financing. As bond markets recover and overseas funding becomes more competitive, CareEdge expects bank credit growth to gradually return to more normal levels. (ANI)