For the Indian banks, the new big opportunity is in ‘the middle’

A new growth opportunity is emerging for banks. Retail lending dominated growth for two decades, but ‘mid-market’ is the new frontier: enterprises with annual turnover between ₹100 crore and ₹1,000 crore and spread across the full gamut of sectors represents the strongest bet for future growth for banks.

Retail and wholesale lending are plateauing

For almost two decades, retail lending—home loans, auto loans, and even unsecured products such as credit cards and personal loans—was a high growth area at 17% CAGR from 2005 to 2024; it surged alongside India’s rising GDP, household incomes, and digital credit adoption.

Wholesale lending—for infrastructure investments and corporate expansion—tells a more chequered story: it grew at 22% CAGR between 2005 and 2014, then dropped to 8% CAGR from 2014 to 2024 as corporate balance sheets got weighed down by unsustainable debt, and bad loans spiked, shaking lender confidence.

Between 2024 and 2026, loan growth for both retail and wholesale segments have plateaued to CAGR of 13-14%. Gold loans have lifted recent retail loan growth, buoyed by sustained price rise of gold; without it, retail lending growth between 2024 and 2026 would have been 11-12%. On the wholesale side, corporates with annual turnover ₹1,000 crore and above, make up 60% of the loans disbursed; it has seen credit growth of 11-12% between 2024 and 2026, with momentum picking up over the past two quarters as large corporates return to bank funding amid softer equity markets and rising bond yields.

The mid-market lending stands apart: credit to this segment has displayed a more consistent and impressive growth of 16-17%—roughly 1.5 times faster than either retail or wholesale lending.

How to make good on the mid-market opportunity

Lending to this segment is not without its challenges: historically, the biggest hurdle to generating healthy, long-term returns has been asset quality. Banks can work on a fundamentally different approach to tap this segment, as follows.

1. Pulling in the whole wallet

Lending is only the starting point. Top-performing banks in the mid-market segment win the full operating account through a seamless banking proposition: they integrate payments, collections, treasury and trade finance into their client’s financial system, creating a relationship that is hard to displace. Growth in mid-market banking will be driven by tailored banking propositions—across products, digital channels and branch experience, instead of retrofitting a bank’s wholesale lending to the mid-market segment. This would generate steady income for the banks irrespective of credit cycles.

2. Focussing on early warning systems

Given the record of volatile asset quality in mid-market enterprises, risk management is paramount. Moving beyond data silos and using next-generation tools such as Artificial Intelligence (AI) can help analyse vast amounts of seemingly innocuous happenings, such as payment delays to the supply chain or cash-flow anomalies, and flag any financial stress—and any corrective measures to be taken thereon by the bank—early.

3. Supercharging relationship managers with AI

Keeping cost-to-income ratios viable will require relationship managers for mid-market enterprises to handle about three times as many relationships as those handling wholesale lending—30 to 45 mid-market accounts per manager compared with 10 to 15 large-corporate accounts per manager. Managing this span of control effectively is only possible with the support of AI and agentic tools: AI can help streamline account planning and serve up ‘next-best-action’ prompts for an account based on sector data.

In a volatile macroeconomic environment, banking for the mid-market enterprises presents a pocket of high growth. The ability to build an effective beyond-lending proposition, and deploying AI and agentic tools, from sales and underwriting to monitoring, will bring out market leaders in this segment that will drive growth for the entire banking institution.

(The authors are partners at McKinsey & Company. Views arte personal.)