Large pvt banks see green shoots, expect credit demand revival in H2FY26

Attribute this to fiscal, monetary measures

Big private banks are noticing green shoots of rising economic activities, evidenced by increasing credit, on the strength of fiscal measures of the central government. They expect fiscal and monetary measures to support stronger loan growth in the second half of FY26 (H2FY26). 

According to the latest data from the Reserve Bank of India (RBI), credit growth picked up during the festival season, reaching 11.4 per cent year-on-year (Y-o-Y) in the fortnight ended October 3, while deposit growth stood at 9.9 per cent. 

Between September 20 and October 3, banks disbursed over ₹3.63 trillion as against ₹1.02 trillion in the previous fortnight. During the same period, deposits grew ₹5.51 trillion. 

“The triad — tax benefits, the cuts in rates of goods and services tax (GST), and the interest rate cut — seems to be working as we see economic activities improving across customer and product sectors,” said Sashidhar Jagdishan, managing director (MD) and chief executive officer (CEO), HDFC Bank, at the post-earnings media call. 

“Against this background, we have an opportunity to activate loan growth, which is what we have started to do from this quarter (Q2FY26). We believe that this will sustain and continue but we have to wait and watch,” Jagdishan said. 

In September, the GST Council rationalised rates in various categories to stimulate consumption. 

In the Budget in February, the government had provided income-tax relief to the middle class by raising exemption limits. 

Meanwhile, the Reserve Bank of India’s (RBI’s) rate-setting panel — the Monetary Policy Committee (MPC) — has cut the repo rate by 100 basis points in this easing cycle, thereby making borrowing cheaper for retail as well as corporate debtors. 

 

HDFC Bank’s gross advances grew 9.93 per cent Y-o-Y and 4.4 per cent sequentially to ₹27.69 trillion. Retail assets Y-o-Y grew 7.4 per cent, the small and mid-market segment 17 per cent, and the corporate segment 6.4 per cent. 

The bank has given the guidance that it will grow its loan books in FY26 in line with the industry, but will expand faster than the industry in FY27 because its credit-deposit (CD) ratio will go below 90 per cent.

 

Amitabh Chaudhry, MD and CEO, Axis Bank, said after the bank’s Q2 earnings: “We are seeing some positive signs. Some of the cuts happened only 20-25 days ago and it will be foolish on our part to jump to conclusions straightaway. But at least on the retail disbursement side, we are seeing some positive uptake. On the wholesale side, we have demonstrated pretty good growth anyway.” 

The bank’s advances rose 12 per cent Y-o-Y and 5 per cent sequentially to ₹11.16 trillion in Q2FY26. 

“As we look back, H1FY26 unfolded against a dynamic macroeconomic backdrop. While tariff-related developments presented headwinds, the policy rate cuts, a favourable monsoon, GST rate reductions, and improving liquidity conditions are poised to serve as strong tailwinds as we enter the second half (H2FY26),” Chaudhry said, adding that these factors, combined with RBI policy interventions, had set the stage for an acceleration in credit growth. 

“With a resilient balance sheet, a sharp execution focus, and a clear strategic direction, we remain confident and optimistic about the opportunities that lie ahead.” 

The RBI recently announced 22 measures aimed at boosting credit flows to the real economy and promoting ease of doing business while lowering bank costs. 

These include a nod for banks to fund acquisitions of Indian non-financial sector companies, upgraded ceilings for loans against securities and initial public offerings (IPO) financing, and tweaks to risk weightings on home loans and other loans. The central bank has also sought to slash the cost of infrastructure financing by non-banking financial companies (NBFCs). It is proposing to reduce the risk weightings applicable for NBFC lending to operational, high-quality infrastructure projects. 

“We expect the second half to be better. And we do hope it reflects better loan growth. We remain positive on it,” said Sandeep Batra, executive director, ICICI Bank, at the post-earnings media call. 

ICICI Bank’s net domestic advances grew 10.6 per cent Y-o-Y and 3.3 per cent sequentially in Q2FY26, with the retail loan portfolio growing 6.6 per cent Y-o-Y, the business banking portfolio 24.8 per cent, and the domestic corporate portfolio growing 3.5 per cent. 

“There was a bit of a slowdown till the GST rate cuts became effective on September 22. Since then there has been strong momentum, which was probably just reflected in just about a week during the current quarter (Q2FY26). We do expect this momentum to continue. And if the economic momentum continues, it will show in our loan growth and the quality of the books we have built,” Batra said.