Hello everyone,

Welcome to the 202nd edition of The Pattern. 

Last week I wrote about something the lending industry hasn't come to terms with yet — that AI is now good enough to find the weak points in the infrastructure modern finance runs on. 

But I wasn't really writing about cybersecurity. I was writing about pressure. About what happens when the environment stops being forgiving. 

I kept coming back to that same idea this week, just from a different direction. 

There's principle in physics that says the faster something moves, the more resistance it encounters. Indian credit just hit 15.9% growth — and you can feel that resistance starting to show up.

Credit is still growing, but the system is getting more cautious about where it flows.  

Banks are still in the game, but the funding pressures of the last few quarters have made the system far more conscious about where growth is coming from. If you've watched enough of these cycles, there's a pattern to how markets react. It's never sudden. First, the system just gets selective. It starts caring a lot more about where capital is going. It looks for the prime borrowers, the clean deals. And it starts asking whether all this operational complexity is really worth it.

Three stories caught my eye this week that all point to exactly that moment. 

The 15.9% number everyone liked 
To be fair, it was a strong number. After years of caution across the sector, 15.9% credit growth feels reassuring. Especially because the growth wasn’t concentrated in just one pocket. Industrial credit is finally waking up again, growing at 15% compared to just 8% last year.
 
That changes sentiment quickly. You can feel confidence slowly returning across the ecosystem again — banks, NBFCs, fintechs, everyone.

But one thing about credit cycles: the headline number usually matters less than what’s happening behind it.
 
Part of this growth story is genuine demand returning. Capex activity is improving. Business confidence is improving. Lending appetite is improving. 
But another part of the story is timing.
 
Over the last couple of years, tighter regulations and higher funding costs slowed down parts of the lending ecosystem, especially around NBFC-linked credit flow. Some of the activity we’re seeing now is demand that was delayed earlier and is finally moving through the system together.

At the same time, banks are entering a funding environment that looks harder than the one they’ve been lending through. Deposits still aren’t growing fast enough (~13-14% YoY FY26 ). Household savings continue shifting toward equities, SIPs (9.92 crore accounts, Rs 16.36 lakh crore AUM ), and other market-linked products. 
That changes behavior over time.

The RBI story isn’t really about forex 

A report this week suggested that the RBI may eventually need to absorb more forex risk itself to attract foreign inflows into India.

India wants stable foreign inflows while also managing rupee volatility, oil prices, and domestic growth expectations at the same time. That balancing act becomes harder when global capital itself turns cautious.

And somebody in the system eventually absorbs that volatility.

If banks can’t hedge or absorb enough of that risk efficiently, the central bank may eventually have to step in and carry part of it.

Now, this doesn’t mean stress is around the corner. But it does mean liquidity slowly becomes more valuable inside the system. And whenever liquidity becomes more valuable, lending behaviour changes too.

• Banks become more selective 

• Risk appetite narrows 

• Operational efficiency starts mattering more 

When liquidity tightens, the system naturally starts gravitating toward safer and easier credit environments.

And if you work in lending long enough, you realize this is usually where the market starts separating into two groups — lenders that can operate efficiently at scale, and lenders that struggle once money stops feeling abundant.

Why efficiency is becoming the new flexibility 

This brings us to the third story. 

Indian banks are proposing a shift toward more flexible lending models (EAC-PM PSL reform, 85% PSL growth to Rs 42.73 lakh crore 2019-24 ). The idea makes sense. The market is moving faster, customer expectations are changing, and banks want more room to respond quickly.

But there’s an interesting question behind that momentum: does faster credit growth automatically translate into healthier lending? 

Because in lending today, Turnaround Time has become one of the biggest competitive advantages in the market.

The faster the decision, the lower the operating cost. The cleaner the underwriting process, the easier it becomes to scale. And banks already show what they naturally prefer whenever constraints reduce: 

• Salaried borrowers 

• Stronger bureau visibility 

• Cleaner documentation 

• Lower operational complexity 

That’s also why underserved markets remain difficult for many lenders. 

A lot of these borrower segments still don’t fit neatly into traditional underwriting systems. Income patterns are fragmented. Documentation is inconsistent. Bureau visibility is thin. 

So if banks receive greater flexibility, capital will naturally start concentrating in areas where underwriting feels easier, faster, and cheaper. 

Which brings us back to the same pattern again. 

Efficiency is slowly becoming the system’s biggest filter. 

Connecting the dots 
Look, the macro picture actually looks fine. Growth is solid, people want to borrow, and there’s still enough cash moving through the system to keep things humming. 

But if you look closely, there’s a subtle reorganization happening. It’s all about efficiency now. 

The "clean" borrowers—the ones with predictable income and zero paperwork drama—are basically becoming the stars of the show. Simple, straightforward underwriting is the new gold standard, and having stable liquidity feels more like a superpower than just a basic requirement. 

The flip side? The "difficult" segments. We’re talking about borrowers who need manual checks, extra verification, or have messy data. That kind of effort is becoming a really hard sell. Unless a lender has already built the specific infrastructure to handle that messiness without breaking a sweat, the math just doesn't add up for them anymore. 

That’s usually how these shifts work. There’s no big, dramatic announcement. It’s just a thousand tiny decisions all moving in the same direction until, suddenly, the game has changed. By the time it’s obvious in the quarterly reports, the market has already been living that reality for months. 

You can already see the early signs of this adjustment if you know where to look. 

Reading list: 

1. Bank credit grows 15.9% in FY26 to Rs 212.9 lakh crore; Finance Ministry says capex, reforms boosting demand

2. Bank borrowings to dominate NBFC funding mix in FY27: CRISIL Ratings

3. The Rupee Is Under Pressure. Should the RBI Step In and Absorb the Risk?

4. India Banks: Proposed Lending Shift Offers Flexibility, Raises Efficiency Doubts 

Thank you for reading. 

See you next week. 

Cheers, 
Mayank