According to Icra, bank credit growth in India is anticipated to drop to 11% to 11.7% in the financial year 2026-27 (FY27), a decrease from 15.9% in FY26. This decline is attributed to rising geopolitical uncertainties, particularly the ongoing conflict in West Asia, and elevated crude oil prices, which have raised risks for India's trade and energy supplies. The Strait of Hormuz, a crucial trade route, accounts for 14-20% of India's trade, and disruptions here could widen the current account deficit and fuel inflation, negatively impacting consumption. Sachin Sachdeva, Vice President at Icra, highlighted that vulnerable sectors like micro, small, and medium enterprises (MSMEs) are likely to be hit hardest, leading banks to adopt a more cautious lending approach. Although overall asset quality is expected to remain manageable, some pressure may emerge in MSME and unsecured retail portfolios. Profitability for banks is projected to decline slightly in FY27, yet remain healthy due to moderate operating costs. However, net interest margins (NIMs) are under pressure from competition for deposits, and the cost of deposits is not expected to ease significantly soon. Deposit growth, while improving towards the end of FY26, continues to lag behind credit growth, creating challenges for the banking system.