Loans Are Rising Fast, But Middle East Clouds Are Gathering Over India's Businesses

Key Insights 

1. As of March 31, 2026, bank credit in India grew by 17.1%, up from 11% last year. Non-food credit also increased to 14.3% in February 2026.

2. The RBI's Bank Lending Survey for early 2026 found that the West Asia crisis affected bankers' confidence, leading to a fall in loan demand from 50% to 28.6%.

Indian Firms Are Borrowing More, and the Reason Is Partly Stress

India's banking sector is seeing strong loan growth, but the cause is not entirely positive. 

Many businesses are drawing more working capital as Middle East tensions push up freight costs and delay supply chains. 

Total flow of resources to the commercial sector reached ₹44.7 lakh crore by March 31, 2026, reflecting 38.2% year-on-year growth. 

Non-food bank credit rose to ₹29.2 lakh crore from ₹18.1 lakh crore a year ago.

In the short term, this surge in borrowing keeps businesses running but raises their interest costs.  

Companies are already absorbing part of the rise in costs by cutting their own margins, according to HSBC's chief India economist Pranjul Bhandari. 

Over time, if the conflict drags on, persistently high freight rates and supply disruptions could squeeze profits and slow private investment. 

This creates a two-sided story for India's credit cycle.

The Credit Story by the Numbers

The table below brings together the key credit data points from recent government and institutional reports. 

It shows where loans are increasing quickly and where people are being more careful.
 

The numbers show a sharp uptick in credit flow, but the forward-looking data tells a more careful story.

Banker confidence for Q1 FY27 has clearly softened amid the ongoing conflict in West Asia.

What This Means for Indian Businesses and Borrowers

For small businesses and MSMEs, the rise in working capital loans brings both relief and risk. When transit times extend by two to three weeks, payment cycles extend alongside them. 

The business has shipped goods and paid freight but cannot invoice until delivery is confirmed, locking up working capital at exactly the wrong moment. 

This is why many Indian firms are now turning to banks to bridge that gap.

India's banking sector remains resilient, with improving balance sheets, steady economic activity, and robust retail and SME credit momentum. 

Early signs of revival in private capital expenditure are also visible, according to the FICCI-IBA Bankers' Survey.