Credit growth is generally weak in the first half of the fiscal as the summer sowing and monsoon season impact investments and consumptions. RBI’s sectoral deployment data released last week showed that credit growth moderated in agriculture, industry and services sectors in May 2025.
Banking sector credit growth slowed to 12% in fiscal ended March 2025, from 16% the previous year indicating weak demand for loans. However, analysts expect credit growth to recover this year largely on the back of cheaper loans after RBI’s cumulative 100 basis points cuts this calendar year. One basis point is 0.01 percentage point.
“We now expect FY26 loan growth to be 12-13%,” said IDBI Capital Markets & Securities in a note earlier this week. “We expect housing sector credit to witness growth traction aided by repo rate cuts, while retail loan segments (including unsecured credit) is expected to showcase growth as the asset quality improves,” IDBI Capital said in the note.
RBI data shows that bank investments in government securities rose 8.7% in the first three months of the fiscal, around the same level it grew at a year ago.
Separately, in a note earlier on Friday, ICICI Bank said easier liquidity in the banking system may result in higher consumption and retail inflation with a lag of about three quarters. “The delay is because of time varying impact of credit channel on aggregate demand. Credit transmission in marginal cost of funds based lending rate linked loans is seen with a lag of three quarters by when the magnitude of reduction in repo and deposit rates is material enough to positively impact consumption,” ICICI Bank said.
