Retail loan growth sluggish for private banks in Q1, festive demand eyed

Retail loan growth at private banks was sluggish in the first quarter (Q1) of 2025–26 (FY26), according to banks that have declared their earnings so far. 

Five private-sector lenders, including the top three, reported single-digit growth in their retail loan books, dragging down overall loan growth during the quarter. These banks are now pinning their hopes on the upcoming festival season, lower interest rates, and income-tax breaks to revive momentum in retail lending. 

HDFC Bank, India’s largest private-sector lender, posted 8.1 per cent year-on-year (Y-o-Y) growth in retail advances in Q1FY26 and just 0.3 per cent sequentially. Mortgage loans grew 7 per cent Y-o-Y, while other retail assets rose 9.6 per cent. As a result, the bank’s overall advances rose 6.7 per cent Y-o-Y and 0.4 per cent sequentially. 

HDFC Bank has earlier said it aims to grow its loan book in line with system-wide credit growth in FY26, and only in 2026–27 will it aim to outpace the system. 

ICICI Bank, the country’s second-largest private-sector lender, reported 7 per cent Y-o-Y growth in its retail portfolio. Within this, mortgages grew 10.3 per cent, vehicle loans 2.3 per cent, credit cards 1.5 per cent, and personal loans 1.4 per cent. Loans against shares shrank by nearly 5 per cent. Overall loan growth came in at 11.5 per cent, buoyed up by nearly 30 per cent Y-o-Y growth in business banking.

 

Axis Bank’s retail book grew just 6 per cent Y-o-Y. Home loans remained flat, personal loans grew 5 per cent, credit cards

2 per cent, and automobile loans declined 2 per cent. 

 

Yes Bank saw a marginal 0.3 per cent rise in retail advances in Q1FY26. RBL Bank reported a 5 per cent Y-o-Y rise in its retail book, while overall advances grew 9 per cent. 

According to the Reserve Bank of India’s (RBI’s) sectoral deployment data, retail loan growth across the banking system slowed to 13.7 per cent in May, down from over 19 per cent in the same period last year — largely due to moderation in other personal loans, vehicle loans, and credit cards. 

Still, bank managements are banking on the upcoming festival season and a combination of lower inflation, soft interest rates, and increased disposable income due to tax reliefs in the Union Budget to boost demand and lift retail credit. 

“...Consumption in the country contributes about 60 per cent of gross domestic product. So, to that extent, more than half the focus will be on the consumer segment. Given that food inflation remains benign and overall inflation is also lower — with the festival season about to begin in the next few weeks — we do expect greater opportunities in that space,” said Srinivasan Vaidyanathan, chief financial officer, HDFC Bank, during the post-earnings media call on Saturday. 

Between February and June, the RBI cut the policy repo rate by 100 basis points (bps) and maintained adequate liquidity in the system. Starting in September, a 100-bp phased reduction in banks’ cash reserve ratio — announced by the RBI in June — will release ₹2.5 trillion for banks to lend. 

Axis Bank’s management noted that while retail disbursements have picked up, assets under management haven’t grown due to loan repayments. Still, the bank sees room to grow. Management has guided for loan growth to exceed system-wide credit growth by over 300 bps. 

ICICI Bank’s management said the “substantial monetary easing that began in the fourth quarter and continued into Q1” could have a positive impact on sentiment. 

With asset quality stabilising in unsecured retail loans, ICICI Bank expects the segment to resume growth.