GST rate cuts spur credit growth for banks in third quarter of FY26

Banks report strong loan growth in Q3 FY26 as GST rate cuts lift demand, with credit outpacing deposits for most lenders even as funding pressures persist

Banking sector has witnessed healthy growth in advances in the third quarter of financial year 2026 (Q3FY26) against the same period last year, as the full impact of goods and service tax (GST) rate cuts drove growth. Most of the lenders saw their credit growth outpace the deposit growth in the quarter.

 

Axis Bank posted 14.1 per cent year-on-year (Y-o-Y) growth in gross advances to ₹11.705 trillion, according to the provisional updates for Q3FY26, from ₹10.259 trillion posted in the year ago period.

 

The total deposits as on December 31, 2025 was ₹12.608 trillion, up 15 per cent on year from ₹10.96 trillion. 

 

Out of that, the current account and savings account (Casa) deposits of the lender was up 13.9 per cent Y-o-Y to ₹4.93 trillion and term deposits were up 15.8 per cent Y-o-Y to ₹7.68 trillion.

 

The largest private sector lender, HDFC Bank also posted nearly 12 per cent Y-o-Y growth in advances to ₹28.44 trillion and deposits rose 11.5 per cent to ₹28.59 trillion.

 

Kotak Mahindra Bank also posted 16 per cent Y-o-Y growth in net advances to ₹4.80 trillion, while deposits rose 14.6 per cent Y-o-Y to ₹5.42 trillion. Among public sector banks, Bank of Baroda’s advances rose 13.54 per cent Y-o-Y to ₹10.95 trillion.

 

Punjab National Bank posted 10.15 per cent Y-o-Y to ₹11.68 trillion and Union Bank of India saw 7.42 per cent growth in advances. 

 

“Most banks have now reported their quarterly updates and perhaps amongst large banks Axis Bank has had a good show on deposits and perhaps one of the few ones to see a declining LDR Q-o-Q (quarter-on-quarter),” said Suresh Ganapathy, head of Financial Services Research, Macquarie Capital.

 

Among the leading banks, HDFC Bank’s credit-deposit (CD) ratio jumped to 99.5 per cent from 98.8 per cent at the end of Q2 FY26.

 

The lender has been steadily bringing down its elevated CD ratio, following its merger with erstwhile mortgage lender HDFC Ltd., which became effective in July 2023.

 

Broadly, most of the commercial banks have reported double-digit growth in loans from the year ago period in the third quarter, signalling a revival in credit demand post a cumulative 125-basis point reduction in the policy repo rate by the Reserve Bank of India (RBI) during 2025.

 

Also, in the period under review, credit growth for most of the lenders outpaced deposit accretion, indicating that challenges around resource mobilisation are likely to persist into 2026.

 

On the other hand, IndusInd Bank saw a 13.1 per cent on-year drop in net advances to ₹3.18 trillion from ₹3.66 trillion in the year ago period and 2.2 per cent drop sequentially from ₹3.26 trillion.

 

The private lender reported ‍a consecutive decline in loans for the fourth straight quarter, hinting at the pressure on the lender after it reported $230 million mis-accounting in its internal derivatives portfolio in the last quarter of FY25 (Q4FY25).

 

It had also reported signs of early stress in their microfinance portfolio in the first quarter of FY26 (Q1FY26) which is likely to have resulted in recalibration of the portfolio.

 

Deposits of the bank were also down by 3.8 per cent on year to ₹3.94 trillion against ₹4.09 trillion reported at the end of December 31, 2024 which analysts attribute to mainly running down of microfinance portfolio. The Casa Ratio of the bank stood at 30.3 per cent as against 34.9 per cent in the year ago period.

 

Out of the total deposits, retail deposits and deposits from small business customers amounted to ₹1.84 trillion as of December 31, 2025.

 

It was ₹1.88 trillion in the year ago period.

 

The retail deposits stood at ₹1.84 trillion at the end of September 30, 2025. However, the deposits were up 1.1 per cent sequentially from ₹3.90 trillion.