Bank credit growth declines sharply to 11% in FY25, shows RBI data

Reserve Bank of India (RBI) data showed deposit growth moderated to 10.3 per cent in the fortnight ended March 21, 2025 (last fortnight of FY25), from 13.5 per cent in FY24

After two years of high growth in the post pandemic phase, the pace of bank credit expansion moderated sharply to 11 per cent year-on-year (Y-o-Y) in FY25 from 20.2 per cent in FY24.

 

The slowdown reflects higher base effect, regulatory actions like higher risk weights to signal stress in retail loans, and the challenge of raising deposits for extending loans, bankers and analysts said.

 

Reserve Bank of India (RBI) data showed that deposit growth moderated to 10.3 per cent in the fortnight ended March 21, 2025 (last fortnight of FY25) from 13.5 per cent in FY24. The data includes the impact of the merger of a non-bank (HDFC) with a bank (HDFC Bank).

 

In absolute terms, banks lent ₹18.11 trillion in FY25 against ₹27.56 trillion in FY24. They mobilised ₹20.99 trillion in deposits in FY25 against ₹24.31 trillion in FY24, RBI data showed.

 

Sanjay Agarwal, senior director, CARE Ratings, said the slowdown is attributed to a higher base effect, RBI measures such as higher risk weights, and a focus on managing the credit-to-deposit ratio.

 

RBI’s repeated concern in rapid growth — especially in retail credit and rising defaults in unsecured loans and hike in risk weights in November 2023 for unsecured loans and credit to non-banking financial companies (NBFCs) — began to show impact in FY25. 

 

The pace of retail lending declined from 27.6 per cent in March 2024 to 11.7 per cent in February 2025. For NBFCs, it slowed from 15.3 per cent in March 2024 to 6.4 per cent in February 2025.

 

RBI was also concerned with the wide gap between credit and deposit growth rates and asked banks to revisit business models and step up deposit mobilisation.

 

At the start of the financial year (April 2024), the gap in rates was about six per cent and it narrowed to just 0.5 per cent in March 2025.

 

The central bank’s change in monetary policy stance from “withdrawal of accommodation” to “neutral” and steps to inject liquidity into the banking system helped banks to manage the challenge of raising resources.

 

These liquidity-enhancing steps were open market operations (OMOs), buying government bonds and long-term $/₹ buy/sell swap auctions. It also included a cut in cash reserve ratio (CRR) from 4.5 per cent to 4 per cent, releasing over ₹1 trillion into the system.

 

Early into FY26, the outlook was cautious due to moderation in economic growth and uncertainty on the global trade front as the US announced reciprocal tariffs on trading partners.

 

Advances are set to grow 12-13 per cent with a moderate pick-up across segments.

 

“The pace of deposit growth and recovery in non-bank funding and retail lending remain monitorables,” Rating agency CRISIL said in its outlook for FY26.

 

Overall, gross non-performing assets (gross NPAs) are likely to bottom out. While corporate health remains robust, elevated indebtedness among retail borrowers needs watching, it added.

 

A top executive of a public sector bank said the liquidity issue was also addressed. He added that things are expected to pick up now in segments like micro, small and medium enterprises (MSME) on increase in credit guarantee cover and Mudra loans limits.