India’s faster bank credit needs a look through to the final borrower

India’s September bank-credit figures show a sharp rise in lending. The next question is how much reached final borrowers and how much risk moved through financial intermediaries. The RBI reports non-food bank-credit growth of 19.1 per cent year on year, compared with 11.2 per cent in the corresponding previous-year fortnight. Services credit grew 28.3 per cent, and the release cites non-bank lenders among several contributing categories. A loan to an intermediary can finance useful credit to households and firms. The original bank’s exposure and the final borrower’s repayment ability still have to be assessed together. RBI’s September 2026 sectoral credit release · RBI’s June 2026 Financial Stability Report announcement

The headline covers a defined set of bank balances

The RBI’s sectoral release is based on 41 selected scheduled commercial banks representing about 95 per cent of total non-food credit by scheduled commercial banks. It reports growth in outstanding balances. That is different from new credit disbursed and from the amount final borrowers received through every channel. A credit stock can rise because new loans exceed repayments, because a particular product expands quickly or because borrowers draw down existing commitments. Comparisons across categories should use the same dates and definitions, including the change in reporting convention noted by the RBI. RBI’s September 2026 sectoral credit release

A bank loan to a non-bank financial company appears in the bank’s book. If that company lends the proceeds to customers, the final loan appears in the non-bank’s book. Both exposures exist, but adding their face amounts as though they were two separate loans to the final economy can count the same funding chain twice. Consider a stylised bank that lends ₹100 crore to an intermediary, which on-lends ₹90 crore and keeps ₹10 crore liquid. The bank has ₹100 crore of exposure to the intermediary. Customers collectively have ₹90 crore of borrowing through it. The two balances answer different questions about funding, credit and risk.

Funding can become tight before borrowers stop paying

Suppose the intermediary funds part of its portfolio with a loan that matures in six months and extends credit for three years. Its customers can keep paying on time while the intermediary faces pressure if renewal becomes costly or unavailable. It may have to slow new lending, sell assets or use liquid reserves. That can affect firms that depend on regular access to credit. The size of the vulnerability depends on actual maturities, whether alternative funding is committed, the ability to sell assets and the terms of each loan. A headline asset-quality ratio cannot capture that timing on its own.

The RBI’s June Financial Stability Report describes the non-bank sector as financially sound in aggregate and reports resilience in banking-system stress tests. Those are important baselines. They leave room for differences across firms, products and financing structures. A sector with strong aggregate capital can include individual institutions whose assets are concentrated in a particular borrower group or whose liabilities depend heavily on a few lenders. A stress scenario should examine correlations across banks and non-banks rather than assuming each institution’s funding alternatives remain available when many face pressure at once. RBI’s June 2026 Financial Stability Report announcement · June 2026 Financial Stability Report

The case for credit intermediation is real

A specialist lender can serve customers a bank finds expensive to assess directly. It can develop local knowledge, collect smaller payments or finance assets on terms that fit their use. Bank funding can make that service cheaper or allow it to expand. The counterargument is that intermediaries can also expand leverage or transfer the cost of refinancing to customers with few alternatives. Assess the lending that reaches final users, including prices, maturities and repayment outcomes. Growth in a bank’s exposure to the intermediary has greater economic value when it finances sustainable access for customers who would otherwise be underserved. RBI’s September 2026 sectoral credit release · RBI’s June 2026 Financial Stability Report announcement

A useful comparison would also distinguish the cost of carrying the same risk through a bank and through a lender that specialises in it. A specialist may charge a higher interest rate because servicing many small loans is expensive. It may also be able to recognise good borrowers that a standardised bank process would turn away. Compare net costs and outcomes after allowing for these differences. A low rate offered to few customers and a higher rate that supports viable borrowing are economically different cases.

Risk measurement also needs to distinguish a flow of new originations from growth in outstanding loans. An institution rolling over many short loans may originate a large sum without adding much to the balance. Another can grow its outstanding stock because repayment slows. Similar headline growth can therefore have different implications for demand and risk. A report on disbursements, maturities and renewals would show whether credit is financing new activity or sustaining existing positions. Where bank and non-bank data are combined, the reporting should make clear where claims between financial institutions have been excluded. RBI’s September 2026 sectoral credit release · June 2026 Financial Stability Report

The fiscal and distributional consequence appears when the channel contracts. Firms relying on specialist finance may lose access sooner than larger borrowers with several bank relationships. Monitoring the availability of replacement funding during a slowdown can show which credit channels are genuinely resilient and which depend on a small number of wholesale lenders.

What the next release should make easier to see

Look for growth by final loan purpose, product and borrower where data are available. Monitor the maturity and concentration of wholesale funding, how rates change for final borrowers and whether problems appear first in approvals, arrears or the cost of renewal. Faster credit growth can support spending and investment. It is more convincing when productive users receive financing on sustainable terms and intermediaries can meet maturities under a plausible stress. The September release gives a measure of expansion. The chain of claims behind it tells us where the return and the risk sit. RBI’s September 2026 sectoral credit release · RBI’s June 2026 Financial Stability Report announcement