IN EARLY 2000, two towering figures, literally and figuratively, came together to mark what would become an epochal moment in India’s banking history. Kundapur Vaman Kamath, the Big B of banking who was then heading what was known as the Industrial Credit and Investment Corp. of India (ICICI Ltd), teamed up with Amitabh Bachchan — incidentally, both over six feet tall — appointing the superstar as the face of a bank-to-be.

It was more than a celebrity endorsement; it marked the end of the era of development financial institutions, as ICICI Ltd was preparing to reverse-merge into its banking subsidiary. The presence of Bachchan was symbolic: a superstar known for reinvention was lending his face to an institution reinventing the logic of credit itself. Universal banking, with retail credit piggybacking on wholesale banking, was the future.

Twenty five years later, history hasn’t repeated, but has certainly rhymed.

The bank that Kamath steered through that transformation now runs an advances book where retail credit at ₹7.53 lakh crore dominates vs ₹5.9 lakh crore of wholesale book (business banking + corporate) as of Q2FY26.

When Fortune India recently caught up with Kamath, now steering Jio Financial Services as its non-executive chairman, he acknowledged the seismic transition that has reshaped Indian banking, particularly over the past five years. “Having done project appraisal for most of my life, at least for the first 20-25 years of my life, I can say that free cash flows today [of India Inc.] are good enough for most expansion. I have never seen such healthy cash flows in my life,” says Kamath.

This shift towards self-funding represents a fundamental break from the past, when corporates depended heavily on bank term loans for expansion.

The numbers do tell a stark story. Bank credit growth has steadily petered out since its FY03 peak of 3.1 times the nominal GDP growth, declining to an average of around 1.0-1.5 times GDP growth in the following years (see: Once upon a time).

Within non-food credit, industrial credit offtake has remained stagnant — a CAGR of 4% for over a decade to over ₹40 lakh crore, of which large corporate exposure has grown at an abysmal 2% — even as retail credit, in particular personal loans, has surged 16% annually to over ₹62 lakh crore (see: How the times are changing).

India Inc., once the primary customer for banks’ loan books, has been systematically deleveraging, finding alternative sources of capital, and choosing to invest in consumer-facing businesses over cash-guzzling traditional ventures. Not surprising that the cash on the books of India’s largest firms by market cap stood at over ₹10 lakh crore, double of ₹4.67 lakh crore in FY16 (See: We have the money).

Running parallel to this internal funding capability has been the maturing of India’s capital markets — a quiet revolution that has fundamentally altered corporate finance.

“Now, what also happened post 2000, was the slow rise of the mutual fund industry, the insurance industry, and the pension industry,” Kamath explains, tracing the emergence of deep institutional capital pools. The result, he notes, is transformative: “Now you have got access to capital market, and they will subscribe to whatever instruments you bring to the market there.”

C.S. Setty, chairman of State Bank of India, the country’s largest bank, acknowledges the changing landscape, but maintains that banks won’t lose relevance in corporate credit. “It’s not as if from tomorrow, all conventional industries will go off. It’s a gradual shift which happens as economies mature and become more knowledge based.”

Conventional banking wisdom holds that once capacity utilisation crosses the 75-80% threshold, corporates must invest in fresh capacity, triggering a new credit cycle. Yet that expansion hasn’t materialised. So, what’s holding them up?

Setty’s answer acknowledges both the disruptions of recent years and a nuanced reality about where private capital expenditure is flowing. “It is not that private capex is not happening. Investments are taking place in renewables, roads, data centres and the like,” Setty explains. But he concedes the critical point: “I think predominantly the credit consumption used to be very, very large by the core sector, and they are holding up for some time.”

Traditional heavy industries — steel, cement, metals — that once drove massive bank credit growth are no longer playing that role. Setty offers two explanations for this hesitation. “One, they [companies] would like to see consumption demand coming back. Two, most of these firms, now with automation and adoption of technology, are able to operate at higher capacity utilisation without worrying about disruptions. Technology is also helping them delay capital expenditure.”

Still, Setty warns of the perils of waiting too long. “One advice I keep giving to industrialists is when the consumption demand comes back and the demand goes up… for instance, take the steel industry, if the end user industry starts demanding higher levels of imports and if local companies are not able to supply, there is a potential import threat, which they should be ready for,” feels Setty.

His conclusion carries a note of hope, albeit tempered: “Instead of waiting for demand to stabilise, if it has reached 75-80%, it’s time to actually invest in capital expenditure. I’m sure they’re all thinking on those lines and, if not the animal spirits, I think some of the plans will materialise into actual spending.”

That phrase — “if not the animal spirits” — is telling, as evidence suggests those days are history. According to data from the Reserve Bank of India (RBI), peak capacity utilisation from its high of 83% in FY11 has been averaging 75% over the past 15 years, falling briefly to 69% in FY20 and FY21.

Debadatta Chand, MD and CEO of Bank of Baroda, remains cautiously optimistic about corporate credit revival. “Consumption itself should drive private investment. That is the thinking, and when you talk about 2047, there is a huge scope for private investment in India,” he says, citing data centres and value-added manufacturing as emerging opportunities.

But even Chand concedes the transformation: “As a bank like us, we always say that if retail is growing at 15%, corporate has to grow at 10-11%. That is a good growth because consumption at some point of time would lead to some rub-off on private capex.”

For large corporates with multiple funding options, banks have become the lender of last resort rather than the first port of call, even as private corporate investment has been stagnant at around 12% of GDP since FY12.

Besides domestic capital, India Inc. has discovered multiple alternatives to bank credit. Following S&P Global Ratings’ upgrade of India’s sovereign rating to BBB from BBB- in 2024 — the nation’s first upgrade in 18 years — domestic firms have been aggressively tapping offshore markets. Indian companies raised over ₹60,000 crore through overseas debt in FY25, up from ₹45,000 crore in FY24. Bond markets, private credit, equity capital, and internal accruals have all emerged as viable alternatives.

“In India, specifically, we’re seeing increased private equity and corporate activity driving demand for sponsor-backed direct lending and flexible financing solutions, especially for growth, acquisitions, and balance sheet optimisation that aren’t always well served by traditional banks,” says Diane Raposio, partner and head of Asia credit & markets at KKR.

For instance, in May 2025, the Shapoorji Pallonji Group raised a record $3.4 billion (approx ₹2.86 lakh crore), the largest private credit deal ever entered into by an established Indian business house.

Perhaps no one articulates the structural nature of this shift more bluntly than Rajeev Jain, MD, Bajaj Finance, one of India’s largest NBFCs. Speaking with the conviction of someone who has navigated this transformation firsthand, Jain dismisses the notion that corporate credit will return to its former glory. “Since 1920, corporate credit growth has been in single digits. Second, availability of capital, not just debt, has become a lot easier, and third, there is a degree of prudence that has emerged among businesses, particularly large businesses, that you could lose your company, post the IBC era,” explains Jain.

He continues with pointed scepticism about the banking industry’s favourite narrative that private capex will eventually come back, especially on the back of steady capacity utilisation numbers. “That is an oversold piece [of idea],” says Jain.

In fact, competing forces such as private credit players are eyeing a bigger landscape to fund in the coming years. “We see opportunities in sectors across India’s economy. We are working alongside our PE and infrastructure teams to invest in long-term structural themes that support sustainable growth and national priorities. Our core focus is critical infrastructure, including roads, highways and power networks that strengthen economic productivity,” explains Raposio of KKR.

But more pertinently, as the Indian economy transitions to a higher per capita GDP, the natural orientation for India Inc. would be to invest in consumer-facing businesses. Take the case in point of commodity conglomerate, the Aditya Birla Group, which has forayed into paints, retail fashion, and jewellery. What is also driving the shift is the fact that consumer businesses command higher valuations than traditional commodity or capital-intensive industrial businesses.

For banks (and NBFCs), the growth opportunity is retail — in line with global norms: take retail deposits, lend to retail, and facilitate commerce/ transactions.

This alignment with global banking norms represents a maturation of India’s financial system, but it also marks a decisive break from the past. The infrastructure funding model that dominated for decades — “one-year average deposits funding multi-decade assets” — created dangerous maturity mismatches and “relied on floating rates that shifted interest-rate risk to both borrower and lender”.

The new equilibrium, according to Kamath, is healthier: “Now banks can lend in line with ALM (asset liability management) preferences, and corporates can borrow in line with their duration needs. So, what is the option [for growth]? The option is retail.”

While the shift from industrial to household credit is not unique to India, its implications extend beyond banking business models. D.J. (Dirk) Bezemer, professor at the University of Groningen who co-authored a 2021 study on credit policy and the “debt shift” in advanced economies, sees familiar patterns emerging in India.

When asked whether India’s trajectory — industrial credit stagnation combined with over 16% annual growth in personal loans — represents the same “debt shift” that advanced economies experienced post-1980s, Bezemer’s response is stark: “Certainly”.

His research shows that long-term shifts from business credit to household credit weaken income generation and raise crisis risk. The concern for India is that its household credit boom is heavily skewed towards unsecured personal loans and credit cards, unlike the mortgage-dominated booms in advanced economies.

Does unsecured household debt pose greater destabilisation risk? Bezemer offers a nuanced view: “Yes and no. Yes, since unsecured credit will more quickly turn down if stressed, as they are given to (often) lower-income households with no security. But for those reasons, they also are less likely to lead to systemic problems.”

The reason: mortgage booms can go on longer and are larger, because the amounts are larger and since borrowers have more income, there is security. Consumer credit does not have this positive feedback loop, which makes mortgage booms grow faster and feel more secure — until they fall. “This is a dangerous dynamic,” says Bezemer.

On whether India’s combination of weak business credit and strong household credit expansion is concerning from a macro-financial stability perspective, Bezemer notes, “Corporate deleveraging in itself makes for more financial stability in the corporate sector. But, bank portfolios may be growing more vulnerable by relying less on [more stable business credit]. The balance of these two destabilising trends is what matters,” adds Bezemer.

The answer to that will be visible in the coming decade.