In a notable trend, Indian banks have sharply increased their exposure to the commercial real estate (CRE) sector during the first four months of fiscal year 2027, from March to July 2026. This surge in lending comes despite the Reserve Bank of India (RBI) implementing higher risk weights specifically aimed at moderating credit flow to this segment.
Banks Dominate New CRE Credit
According to research from Bank of Baroda, banks accounted for an overwhelming 111.3% of the incremental commercial real estate credit recorded between March and July 2026. This figure reflects not only a substantial increase in bank lending but also a contraction in credit provided by Non-Banking Financial Companies (NBFCs) during the same period.
- Banks added ₹42,142 crore in new CRE credit.
- NBFC credit to the segment contracted by ₹4,284 crore.
This dynamic points to a significant shift, positioning banks as the primary source of fresh funding for commercial real estate in the current fiscal year. As of July 2026, outstanding CRE credit for banks stood at ₹6.7 lakh crore, vastly exceeding the ₹1 lakh crore outstanding with NBFCs. On a year-on-year basis, bank CRE credit grew by 21.5%, while NBFCs saw a 22.3% increase, yet the incremental lending trend shows a clear divergence.
Behind the Surge: Growing Construction Activity
Bank of Baroda Research attributes this robust lending momentum partly to a significant uptick in construction activity across the country. Key indicators supporting this include:
- Gross Value Added (GVA) in construction grew by 7.7% in Q1 FY27 (constant terms), up from 5.2% in Q1 FY26.
- Cement production expanded by 9.9% between April and July 2026, compared to 8.2% in the corresponding period of the previous year.
These figures suggest a strong demand-side explanation for the increased credit, driven by ongoing development projects.
Monitoring Risks in a Hot Sector
Despite the positive indicators from construction, the research note issued a caution. Commercial real estate is categorized as a higher-risk sector, and the rapid expansion of bank lending, even with elevated regulatory risk weights, warrants close monitoring. The RBI's measures were designed to regulate such flows, making the current trend a point of interest for financial observers.
This pattern in commercial real estate aligns with a broader trend where banks have dominated incremental credit across most sectors in FY27 so far, accounting for 77.1% of total incremental credit from March to July. However, the unique combination of rapid bank-led expansion and higher risk weights makes the commercial real estate segment a critical area to watch as construction activity continues to gather pace.