India funding mix changes again, bank lending back in favour with a bang

Bank lending has re-emerged as the dominant source of funding for India’s commercial sector in FY26, with its share in overall resource mobilisation rising to a three-year high, according to the RBI’s April bulletin.

The shift marks a decisive turn in financing patterns. Total resource flows stood at Rs 44.7 lakh crore in FY26, while non-food bank credit climbed sharply to Rs 29.2 lakh crore, pushing its share to 65.4%. This compares with a more evenly distributed funding mix a year earlier, which has now tilted clearly in favour of banks.

Market-based instruments presented a mixed picture. Equity fundraising weakened, with its share dropping from 10.8% in FY25 to 7.7% in FY26. In contrast, bond issuances gained traction, rising from 5.6% to 6.8%, indicating a preference among firms for longer-tenure debt even as reliance on bank funding increased.

Also read | Shapoorji Pallonji to close Rs 25,400 crore financing by mid-May

Data over the past three years underscores the volatility in funding composition, a ToI report said. In FY24, total resource flows were Rs 35.6 lakh crore, with bank credit at around Rs 23 lakh crore, accounting for 64.5%. In FY25, overall flows were largely unchanged at Rs 35.2 lakh crore, but bank lending declined to Rs 18.1 lakh crore, reducing its share to 51.4%. This trend reversed sharply in FY26, with the share of bank credit rising by about 14 percentage points to 65.4%.

The structure of non-bank financing has also undergone a notable shift. Foreign capital has gained prominence, increasing from 6.8% of total flows in FY24, or Rs 2.4 lakh crore, to 11% in FY26, or Rs 4.9 lakh crore. Meanwhile, domestic non-bank sources saw their share decline from 28.7% to 23.6% during the same period.

The rebound in bank lending has been particularly strong. After falling from about Rs 23 lakh crore in FY24 to Rs 18.1 lakh crore in FY25, non-food bank credit expanded by 61.5% in FY26, reflecting fresh disbursements rather than changes in outstanding credit.

Also read | HDFC Bank alerts clients on card swipe for overseas deals

A late surge in lending further boosted the overall numbers. By end-March 2026, outstanding bank credit had reached Rs 219 lakh crore, marking a 16% year-on-year increase.

Other funding channels showed divergent trends. Corporate bond issuances rose 52.4% in FY26 to Rs 3 lakh crore from nearly Rs 2 lakh crore. In contrast, commercial paper issuance contracted by 57.8%, suggesting reduced demand for short-term funding. External commercial borrowings grew 66.2%, signalling renewed appetite for overseas debt.

Foreign direct investment also maintained an upward trajectory, rising 11% in FY25 and accelerating to 31.3% in FY26 to reach Rs 3.2 lakh crore.

Overall, the data points to a clear reorientation of corporate financing towards the banking system. While foreign inflows are strengthening and bond markets remain active, the scale and pace of bank lending have come to dominate the flow of funds in FY26.