The Economic Survey for fiscal year 2025-26, presented in Parliament on Thursday, highlights a significant shift in how India's commercial sector finances its growth. With traditional bank credit showing moderation, corporations are increasingly turning to alternative funding sources, with record net profits emerging as the primary engine driving expansion.
Non-Bank Funding Outpaces Traditional Credit
According to the survey data covering April to November 2025, there was a substantial increase in financial resource flows from non-bank sources, which grew by an impressive 29.3% year-on-year. This growth significantly outpaced the 18.3% expansion in non-food bank credit during the same period.
The survey noted that faster monetary policy transmission has made market-based instruments a viable alternative for large corporations, while rising profitability has enabled firms to leverage internal resources for their expansion needs. This collective shift has reduced traditional reliance on bank lending across the commercial sector.
Foreign Sources Lead Non-Bank Funding Surge
Within the non-bank funding landscape, foreign sources demonstrated particularly strong growth. As of December 31, 2025, foreign funding sources surged by 38% year-on-year, more than doubling the 19.1% growth from domestic sources.
This foreign influx was primarily driven by two key factors:
- A dramatic rise in external commercial borrowings (ECBs), which climbed from ₹5,000 crore to ₹27,700 crore
- A substantial 67% increase in foreign direct investment (FDI)
On the domestic front, corporate bond issuances fueled growth with a staggering 263.3% increase on a yearly basis, according to the survey findings.
Profit Power: Internal Accruals Dominate Funding
A separate analysis of CMIE data reveals that net profits—or internal accruals—remain the primary funding source for Indian corporates. In the September quarter, non-financial companies recorded a massive ₹3 trillion in net profits, accounting for nearly 40% of all funds raised.
This represents a 54.5% year-on-year surge, marking the strongest profit growth in four years. Experts noted that companies have prioritized internal cash generation as their primary financing lever, ensuring their balance sheets remain robust and unburdened by excessive external debt.
Broader Funding Landscape Support
Beyond internal accruals, the broader funding landscape received support from multiple sources:
- Increased bank credit to industrial and services sectors
- Fresh equity and debt issuances
- Net foreign direct investment
- Net external commercial borrowings
- Rise in outstanding commercial paper
Challenges to the Internal-Financing Model
However, the survey raises important questions about whether this internal-financing lever might be starting to weaken. Early results for the December quarter revealed a disrupted profit narrative as third-quarter expenses surged unexpectedly.
A spike in labor and input costs squeezed corporate margins just as revenue recovery was gaining traction across sectors. Analysts suggested that while the immediate impact of new labor codes may deliver a one-time accounting hit, rising raw material costs present a more persistent structural risk to profitability.
In this evolving economic environment, the reliability of internal accruals as a primary funding source faces a stern test, according to the survey's analysis. The document emphasizes that while non-bank sources have effectively offset the decline in bank credit growth observed in early FY26, sustaining this funding model requires careful monitoring of corporate profitability trends.
The Economic Survey's findings suggest that India's commercial sector stands at a crossroads, balancing between leveraging record profits for expansion while navigating emerging cost pressures that could challenge this sustainable funding model in the coming quarters.
