MSME CREDIT GROWTH IN FY26 TO CROSS RS 6 LAKH CRORES.... 5.5 TIMES HIGHER THAN CUMULATIVE 16 YEAR AVERAGE..
FinTech BizNews Service
Mumbai, November 29, 2025: The India story appears to take new, bigger and bolder dimensions. All with alluring connotations. With 8.0% real GDP growth in H1 FY26, the overall growth for full fiscal would be approximately 7.6% (Assuming 7.5%-7.7% in Q3 and 7% in Q4); predicts a Research Report of the State Bank of India’s Economic Research Department. The report has been authored by Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India.
GDP EXPANDS BY 8.2% IN FY26
India’s economy grew 6-quarter high by 8.2% in Q2
FY26 as compared to 5.6% growth recorded in Q2
FY25. The GVA grew by 8.1%.
Nominal GDP grew by 8.7% in Q2 FY26 higher than
the 8.3% growth occurred in Q2 FY25. The gap be-
tween real and nominal GDP, which was as large as
12 percentage points in Q1 FY23, dropped sharply to
0.5 percentage points in Q2 FY26.
Core GVA (Overall GVA ex Agriculture and Public Fi-
nance) registered a growth of 8.5% yoy in Q2 FY26
compared to a lower 5.6% yoy in Q2 FY25.
Agriculture sector grew by 3.5% while industry sector
witnessed a high growth of 7.7% compared to 3.8%
in Q2FY25.
India's manufacturing sector showed impressive
growth in Q2FY26, growing by 9.1% YoY, compared
to a mere growth of 2.2% in Q2FY25.
Services sector shows stellar performance alongside
manufacturing and grew by 9.2% due to 10.2% in
‘Financial, real estate & professional service’ sector’
and 9.7% growth in ‘ trade, hotels, transport, com-
munication, etc.’ sector.
With 8.0% real GDP growth in H1 FY26, the overall
growth for full fiscal would be approximately 7.6%
(Assuming 7.5%-7.7% in Q3 and 7% in Q4)
GDP DEFLATOR
GDP deflator declined to 0.5% yoy in Q2 FY26 com-
pared to 2.5% yoy in Q2 FY25. Growth in GDP defla-
tor for agriculture has declined to -1.7% yoy in Q2
from -0.5% yoy in the previous quarter.
For industry GDP deflator increased to 0.7% yoy
compared to 0.6% yoy in Q2 FY25, with manufactur-
ing registering higher deflator growth.
Meanwhile, growth in services deflator moderated to
1.2% yoy in Q2 from 2.8% yoy in Q2 FY25.
EXPENDITURE SIDE STORY
The Q2 demand is a story anchored in private
consumption that registered a growth of 7.9%,
capital formation registered a growth of 7.3%. The
exports also registered growth of 5.6%, which is a
sequential slowdown but improvement on yoy basis
indicating mixed pictures on external demand.
However, H1 figures show exports held up during
FY26 despite the headwinds. Front loading of exports
against the backdrop of US tariffs supported higher
exports growth.
The expenditure side trends show robust demand
trend supported by two factors. First, a broad
deceleration in prices is reflected in contractionary
trends in GDP deflators and second good
performance in labour intensive sectors such as
agriculture, manufacturing, construction and services
such as personal and financial services. The growth in
change in stock also suggests strong demand trends.
Other components such as valuables have continued
to contract. Valuables contracted by 22.7% yoy owing
to higher base as Q2 FY25 registered sharp growth
owing to high investment demand for gold due to
rising prices. The sharp growth in imports was riven
by capital goods, rare earth and chemicals imports
that were absorbed in capital formation during the
year.
The overall trends suggest that GDP growth is
domestic driven, supported by services exports and
driven by low inflation and value-add expansion in
labour intensive sector.
LINKAGE BETWEEN NOMINAL GDP & EARNINGS
GROWTH
To test the linkage between GDP and earning growth
we have taken nominal GDP YoY Growth and Nifty50
index YoY growth data for the period Q1FY13 to
Q2FY26. Till Q1FY23, both move in the same direc-
tion but there after indicate a divergence in trend.
To test statistically, we have calculated the correla-
tion between GDP and Nift50 Returns. The results
indicate that there is a positive correlation between
both for the period Q1FY13-Q2FY26 and Q1FY21-
Q2FY26. While there is a negative correlation during
the recent period Q1FY23-Q2FY26.
Thus, positive correlation between Nifty returns and
GDP growth, meaning that as the Indian economy's
GDP grows, the Nifty index tends to rise as well. How-
ever, the link is not always perfectly synchronized in
the short term, as market performance is influenced
by many factors beyond GDP, such as investor senti-
ment, corporate earnings, and global economic con-
ditions. In the long term, however, market growth
and earnings tend to converge, suggesting that
strong economic growth can lead to sustained mar-
ket returns.
FLOW OF CREDIT TO COMMERCIAL SECTOR
Indian banking system are now positioned as a sound
and well capitalised sector to support growth. In the
current year, the credit growth of SCBs is slowly pick-
ing up and grew by 11.3% YoY, (last year 11.8%) for
the fortnight ended 31 Oct’2025, while deposits
growth remains at 9.7% (last year: 11.7%).
The sector-wise incremental credit growth for Octo-
ber 2025, indicate that credit growth has increased
across the sectors, except Agri & Allied sector. Agri &
Allied sector grew by 8.9% (Last year: 15.5%), indus-
try by 10.0% (Last year: 8.1%), Services by 13.0%
(Last year: 12.5%) and personal loans by 14.0% (Last
year 12.9%).
Credit to ‘Micro and Small’ and ‘Medium’ industries
continued to expand in double-digits. Among major
industries, outstanding credit to ‘all engineering’,
‘infrastructure’, ‘construction’, ‘textiles’ and
‘vehicles, vehicle parts and transport equipment’ rec-
orded buoyant y-o-y growth. Loans against gold jew-
ellery increased by 128.5% YoY to Rs 3.37 lakh crore.
By looking at the trend growth, deposits may grow by
10-11% and credit by 11-12% for SCBs during FY26.
The resource flows to commercial sector indicate
that the share of bank funding hold ~55% during Apr-
Oct’25, compared to 60% in Apr-Oct’24, which is
mainly due to the Rs 2.2 lakh crore flows from
‘Corporate Bonds by Non-Financial Entities’, com-
pared to last year Rs 39,201 crore during Apr-
Oct’2024.
In our earlier estimate, granger causality test results
confirmed that there is one way causal relationship
between GDP and ASCB credit, with increase in credit
leading to higher GDP. So, with the increase in credit
during Q3FY26, amid GST rationalisation, we expect
GDP growth will be 7.5-7.7% and 7.0-7.1% in
Q4FY26.
CORPORATE RESULT Q2FY26 - EBIDTA GREW NEAR
DOUBLE DIGIT, FROM NEGATIVE A YEAR AGO
Around 4000 Corporate in the listed space reported
revenue growth of 6.8% while EBIDTA and profit after
tax (PAT) growth of around 7.7% and 33% respective-
ly in Q2FY26 as compared to Q2FY25.
Further, Corporate ex BFSI represented by more than
3500 listed entities reported revenue and EBIDTA
growth of 6.8% and 9.6% respectively, in Q2FY25 as
compared to -1.5% growth in Q2FY25.
Major sectors that contributed to the growth include
Aerospace and Defence, Automobiles, Capital goods,
Cement, Diamond, Gem and Jewellery, Fertilisers,
Non-Ferro Metals, Steel, etc. Overall EBIDTA margin
also improved by 41 bps i.e. from 14.4% in Q2FY25 to
14.81% in Q2FY26. Q2FY26 result was mainly driven
by strong performance in commodity-oriented sec-
tors and improved consumption supported by tax
and GST rationalisation.
New investment announcements also improved by
around 80% in first half of FY26 to Rs 35.8 trillion
powered by private investment announcements
which contributes more than 70% of the new an-
nouncements. Capacity utilisation remained strong at\
74.1 in June’25 though it moderated from 77.7 in
Mar’25.
