Outlook 2026: Will big corporates keep ignoring big bank loans?

The corporate banking sector in the country will undergo a decisive reset in 2026 as big borrowers shy away from massive, headline-grabbing bank loans towards fundraising through equity and bond issuances. Over the last few years, corporate bank credit has been lagging, while momentum has shifted towards mid-sized firms and supply-chain-linked enterprises rather than traditional large corporates.

Big companies, supported by healthy balance sheets and easy access to equity and bond markets, are increasingly bypassing banks. This divergence has quietly reshaped loan books. However, banks witnessed a revival in corporate credit starting from the July–September quarter, which rose 3–11% sequentially across major banks.

State Bank of India Chairman CS Setty said after the Q2 result that the bank reversed the negative growth trend in corporate lending and is expected to hit double-digit growth in the forthcoming quarters. Working-capital utilisation is one of the major reasons for SBI's corporate credit growth. In parallel, another trend was evolving— corporates used surplus cash or equity raises, IPOs and FPOs to repay their loans. This muted a part of corporate credit growth for many banks.

Anu Aggarwal, President & Head – Corporate Banking, Kotak Mahindra Bank, notes that the trend is hardening. “Within the corporate banking landscape, advances growth for banks will continue to be driven primarily by the SME and Mid-Market segments, which will remain the most active borrowers for banks. Both these segments are growing at over 25% plus, and this momentum is likely to continue into 2026. Among the larger corporates, the increasing use of capital markets – both equity and debt – will continue to restrict their reliance on banking credit and growth in Advances from this segment will therefore remain restricted.”

Vijay Mulbagal, Group Executive - Wholesale Bank Coverage, Corporate Salary, Sustainability & CSR – Axis Bank, says corporate credit demand is broadening beyond capex-light sectors. “Corporate balance sheets are the strongest they have been in a decade, leverage metrics are stable, and promoter intent is expansionary,” he says.

A structural positive is the RBI’s move to permit bank financing of acquisitions, which will deepen domestic M&A and widen banks’ solution toolkits, he expects. The draft Commercial Banks (Capital Market Exposure) Directions, 2025 propose permitting banks to fund up to 70% of an acquisition’s value, capped at 10% of a bank’s Tier-1 capital. RBI's proposal is the result of a long-standing demand by industry leaders, including Uday Kotak.

According to Mulbagal, four durable lending themes are expected to stand out in 2026—energy transition and grid-linked infrastructure; consumption-linked manufacturing across auto adjacencies, electronics, food processing, and export-competitive SMEs; services scaling through data and digital rails—data centres, health delivery, and platform-driven distribution; and well-governed mid-market corporates, commercial real estate, and select NBFCs in well-underwritten segments.

Project finance is expected to revive only in selective pockets rather than across the board, says Kotak Bank's Anu Aggarwal. She highlights specific opportunities in areas like data centres and renewable energy, where strong sponsors and industrial demand from AI are creating long-term project pipelines.

Simultaneously, ESG-linked lending is expected to gain more relevance by 2026. “While ESG-linked financing has been slow to take off in India, momentum is likely to strengthen in 2026, driven by a regulatory push and increasing awareness among regulators, markets, corporates and banks of climate-related disruptions and impact on business operations. Banks are likely to begin integrating rudimentary climate risk evaluations in their credit framework and strengthen these with time,” says Aggarwal.