Credit growth inches up to 9.8% as deposit growth continues to outpace

At 10.1%, deposit growth continues to outpace credit, although the gap has narrowed to 300 basis points

The pace of bank credit growth grew to 9.8 per cent year-on-year (Y-o-Y) in the fortnight ended July 11, while deposit growth remained steady at 10.1 per cent. It continued to outpace credit growth, although the gap narrowed to 300 basis points, according to the latest data from Reserve Bank of India (RBI). In the fortnight ended June 27, the credit growth stood at 9.46 per cent. 

 

During the same period last year, banking system credit grew 14 per cent while deposit grew 11.3 per cent.

 

In absolute terms, outstanding credit in the banking system stood at ₹184.63 trillion, while outstanding deposits were ₹233.25 trillion, as per the latest data. During the fortnight, credit declined by ₹23,036 crore, and deposits fell by ₹99,909 crore. In the previous fortnight, outstanding credit and deposits stood at ₹184.83 trillion and ₹234.25 trillion, respectively.

   

Credit growth has fallen sharply from the high of around 20 per cent in May 2024. In FY25, the credit growth was 11 per cent, while deposits grew 10.26 per cent.

 

In Q1FY26, most large private sector banks reported tepid loan growth.

 

HDFC Bank’s -- India’s largest private sector lender -- overall advances grew at 6.7 per cent Y-o-Y, while ICICI Bank’s overall loan book grew 11.5 per cent during this time. Axis Bank’s advances grew 8 per cent Y-o-Y in the quarter.

 

The deceleration in credit growth has been sharp in the past one year, as lenders are prioritising asset quality amid higher delinquencies in unsecured retail, microfinance business while continuously tightening the underwriting standards, experts said.

 

Banks are betting on the upcoming festival season to revive credit demand, supported by the RBI’s rate cut and the boost in consumption expected from the tax sops announced in the Union Budget earlier this year. 

 

“Economy is doing well. Monsoon has been extremely good. Government investment continues to help. And, I think, with the festival season starting from the end of second quarter, we are expecting demand to come from all the sectors”, said Prashant Kumar, MD&CEO, Yes Bank in an interview with Business Standard earlier this week.

 

Sashidhar Jagdishan, MD&CEO, HDFC Bank in an analyst call, following the bank’s Q1 earnings said, HDFC Bank is seeing some amount of healthy demand from the rural side, and while there has been some fatigue in the premium urban consumption in the recent past, but with the festival season, which will start shortly, it will have a reasonable amount of impetus on demand.  

 

“The fact that interest rates have come down, the fact that people would have now started to see savings arising out of the fiscal largesse that was given in the last budget, I think all that will play in with the convergence of the sentiments and the moods, which normally the Indian festivities normally bring about”, Jagdishan said in the analyst call.  

 

The RBI’s monetary policy committee (MPC) has cut policy repo rate by 100 basis points (bps) since February, and the banks have passed on 50 bps of the 100 bps rate cut to the consumers in the form of lower interest rate on loans. Additionally, the RBI is keeping the system flush with liquidity so that the cut in policy rates could be transmitted to lending and deposit rates. The repo rate stands at 5.5 per cent and net liquidity in the system was in surplus of ₹2.55 trillion as of July 24.

 

Rating agencies estimate credit growth this year (FY26) to be around 11.5 – 12.5 per cent, but there could be some revision to the projections, as credit demand is expected to pick up in the second half of FY26.