Loan Demand Outlook Shows Signs Of Optimism For Q2 FY26 Onwards: RBI Survey

RBI’s latest Bank Lending Survey shows that loan demand slowed in Q1 FY26, but banks expect borrowers to return in the next quarter.

Why do people borrow more after a slowdown? The Reserve Bank of India’s (RBI) 32nd Bank Lending Survey, released in August 2025, offers some answers. It covered over 30 large scheduled commercial banks that together account for more than 90% of India’s bank credit. 

The findings show that between April and June 2025, demand for loans dropped, but is likely to rise again in the months ahead.

This slowdown happened because of seasonal patterns, lower investment in some industries, and fewer personal loans being taken. Even so, the same report predicts that lending will pick up between July and September 2025 and continue after that. This shift in mood is now attracting the attention of both banks and borrowers.

To see why, it helps to check how the main sectors performed.

Sectoral Loan Demand In Q1 FY26

Loan demand across sectors in the first quarter saw a downward trend compared to the final quarter of FY25. Agriculture and retail borrowers, who are usually key drivers of credit growth, recorded notable drops.
 

The table shows that while Q1 saw contraction, Q2 projections are healthier. Manufacturing, although not in the Q1 breakdown, is expected to see demand reach 43.1 percent in the next quarter.

Moving beyond numbers, the survey points to lending conditions as another reason for optimism.

Read More – Will Personal Loan Interest Rates Drop in 2025? Here’s What Experts Say!

Lending Conditions And Borrower Access

The RBI survey also checks how easy or strict banks make loan terms for borrowers. In Q1 FY26, banks took a friendly approach, meaning loans were easier to get than before. They reported an overall easing of 12.5%, with retail and services loans seeing the most relaxed rules.
 

This shows that banks are ready to support some sectors with softer terms, even if loan demand is slow. It also signals their confidence that borrowers can repay, backed by RBI data showing bad loans at multi-year lows.

Business Mood In Services And Infrastructure

Another view comes from RBI’s Services and Infrastructure Outlook Survey, done in the same quarter with 693 companies. These firms reported better business conditions, higher turnover, and more hiring than in the previous quarter.
 

The numbers suggest that as services and infrastructure grow, they will need more working capital and project loans, pushing up overall credit demand.

The Finance Ministry’s July 2025 economic review adds that while Q1 loan demand was slow, domestic demand stayed steady and supply chains remained strong. RBI’s June 2025 Financial Stability Report shows banks’ gross NPA ratio at 2.3% in March 2025, likely to stay near 2.5% by March 2027.

This strong asset quality gives banks the confidence to lend more, even to sectors that slowed in Q1, which is a key reason for the positive outlook from Q2 FY26 onwards.

Macro Stability And Banking Health

The Finance Ministry’s July 2025 economic review adds another piece to the puzzle. Yes, Q1 saw slower loan demand, but the report points out that domestic demand stayed steady and supply chains held strong. Meanwhile, RBI’s June 2025 Financial Stability Report shows banks in good shape, with bad loans at just 2.3% in March 2025 and expected to stay near 2.5% till March 2027.

Also Read - Retail Loan Demand Dips in Q4, But Repayment Performance Shows Positive Signs

When banks have clean books, they feel more confident to lend, even to sectors that had a dull first quarter. That confidence is one of the reasons many believe Q2 FY26 will look brighter.

What The Next Quarter May Bring

RBI’s projections suggest Q2 could see more loans flowing into manufacturing, retail, and agriculture. Manufacturing might get a push from seasonal production and fresh industrial orders. Retail lending could rise as people gear up for the festival season in September and October. 

Agriculture may bounce back as farmers borrow for crop cycles and Kharif season expenses. Even infrastructure, slow in Q1, could see action thanks to government-backed projects in transport and energy.

Conclusion 

If banks keep lending terms friendly, this momentum could last beyond Q2. RBI’s sector-by-sector look shows each industry reacts differently to the economy, but easier credit often brings borrowers back faster. That’s why these projections matter to policymakers, bankers, and businesses planning ahead.

The RBI’s Bank Lending Survey and its Services and Infrastructure Outlook Survey tell a similar story. Better turnover and higher margins mean companies have the ability to borrow and repay, which reassures lenders.

As Q2 results start coming in, bankers and analysts will watch closely to see if this optimism turns into real loan growth. The real test will be whether lending can stay strong despite challenges like inflation, higher input costs, and changes in global demand.
 

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