Private capex to hit Rs 3.2tn in FY27, but credit growth still lags

Despite an 18% rise in fresh project loan sanctions in FY26, India's private investment cycle has not triggered strong credit growth. RBI expects private capex to reach Rs 3.2 trillion in FY27, with infrastructure getting most bank funding.

India’s private sector investment cycle has yet to translate into a strong credit growth cycle, despite fresh project loan sanctions rising 18 per cent year-on-year in FY26, with infrastructure, especially power, continuing to attract a major share of bank funding, according to a report by Kotak Institutional Equities.

The Reserve Bank of India’s (RBI) latest bulletin projected capital expenditure by India’s private corporate sector to increase to Rs 3.2 trillion in FY27 from Rs 2.6 trillion in the previous fiscal.

According to RBI data cited by Kotak, fresh project loan sanctions to the private sector by banks and financial institutions were around 3 per cent of total loans in FY26, unchanged from FY25. Pending disbursements accounted for around 2 per cent.

Private Capex Yet to Trigger Strong Credit Cycle

Kotak said fresh project loan sanctions rose 18 per cent year-on-year in FY26, bringing them closer to levels seen during the peak of the FY2010-11 period. However, this has not yet resulted in a strong private capital expenditure-led credit cycle.

“Credit growth, driven by an exciting phase of private capex, is yet to be seen. Infrastructure (mainly power) remains a preferred destination for bank funding,” the brokerage said.

Sectoral and State-wise Sanction Trends

Infrastructure accounted for around 50 per cent of total project sanctions in FY26, broadly in line with the trend seen between FY17 and FY25. In recent years, infrastructure sanctions have mainly been driven by projects in the power and roads and bridges sectors. However, sanctions for roads and bridges declined sharply in FY26.

At the same time, sanctions for chemical and fertiliser projects, along with construction projects, have increased in recent years.

Maharashtra and Gujarat continued to receive the largest share of private-sector project sanctions, while Rajasthan and Tamil Nadu also recorded a notable improvement.

Focus on Project Type and Size

Historical data showed that mega projects costing more than Rs 50 billion received less than Rs 1 trillion in sanctions after FY14. This was significantly lower than the Rs 2.4 trillion recorded in FY10 and Rs 1.8 trillion in FY11.

Kotak also noted that greenfield projects continued to account for a major share of project sanctions.

Credit Growth Outlook Cautious

The brokerage said risks to credit growth remain tilted to the downside from current levels. Overall credit growth is around 18 per cent year-on-year, supported by a sharp recovery in corporate lending.

However, Kotak said the recovery in project sanctions is not yet strong enough to significantly change the overall credit growth trajectory. “Our analysis suggests that the improvement remains insufficient to materially alter the overall growth trajectory at this stage,” the brokerage house said. (ANI)

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