Indian bank credit surged by 16.08 per cent year-on-year in FY26, marking its fastest expansion since FY24, though experts suggest year-end figures might be influenced by changes in RBI reporting dates, while deposit growth lagged at 13.47 per cent.
Key Points
- Indian bank credit expanded by 16.08 per cent year-on-year in FY26, the fastest pace since FY24, reaching Rs 213.61 trillion.
- Deposits grew by 13.47 per cent year-on-year in FY26, also the highest since FY24, totalling Rs 262.30 trillion.
- Experts caution that year-end growth figures may be inflated due to changes in the RBI’s reporting dates, but credit momentum has picked up, especially in corporate, MSME, and retail segments.
- Banks are increasingly relying on Certificates of Deposit (CDs) to bridge balance sheet mismatches, with issuances nearing Rs 14 trillion in FY26.
- Rating agencies project bank credit growth to moderate to 13-14.5 per cent in FY27, with deposit growth lagging at 11-12 per cent, necessitating aggressive deposit mobilisation.
After muted growth in 2024-25 (FY25), bank credit expanded by 16.08 per cent year-on-year (Y-o-Y) in FY26, marking the fastest pace since FY24, when credit in the system grew by over 20 per cent.
During the same period, deposits rose by 13.47 per cent Y-o-Y, also the highest growth since FY24, according to the latest data from the Reserve Bank of India (RBI).
According to the data, total banking credit on an absolute basis stood at Rs 213.61 trillion, while deposits reached Rs 262.30 trillion.
In the fortnight ended March 31, credit grew by 2.8 per cent (Rs 5.92 trillion), compared to just 0.1 per cent (Rs 18,672 crore) in the previous fortnight.
Deposits grew by 4.87 per cent (Rs 12.18 trillion) during the same fortnight.
Understanding the Growth Drivers
While the year-end growth figures appear impressive, experts caution that they may be inflated due to changes in the RBI’s reporting dates.
That said, credit momentum has picked up in recent months, particularly in the corporate and micro, small and medium enterprise (MSME) segments.
The retail segment has also seen strong growth, especially in gold loans.
“Banks have been reporting healthy credit growth in the past few months, supported by declining lending rates, which have made bank borrowing more attractive compared to bond markets, where yields have remained elevated,” said Sachin Sachdeva, vice-president, financial sector ratings, Icra.
Exchange rate volatility and high global yields have kept offshore fundraising relatively expensive, Sachdeva said, adding: “To some extent, the shift in reporting dates — from alternate Fridays to the 15th and month-end — has also inflated the reported credit growth numbers.”
Corporate and MSME Sector Performance
Major banks, including State Bank of India (SBI), HDFC Bank, ICICI Bank, Axis Bank, and Kotak Mahindra Bank, have reported robust growth in both their corporate and MSME portfolios up to Q3FY26.
Experts have noted that this trend is largely driven by corporates returning to bank lending as interest rates softened.
At the same time, bond market yields remained elevated, initially due to the US tariff situation and more recently due to the conflict in West Asia.
The war has also constrained external commercial borrowing (ECB) routes, as hedging costs have surged.
Challenges and Future Outlook
Sachdeva added that banks will need to aggressively mobilise deposits and/or reduce their investment holdings to sustain this pace of credit expansion.
Given the ongoing challenges in attracting deposits, pricing is expected to remain on the higher side.
Additionally, elevated certificate of deposit (CD) rates are likely to exert further pressure on banks’ cost of funds, he added.
Banks and financial institutions raised over Rs 5.27 trillion through CDs in Q4FY26, an increase of over 30 per cent both sequentially and Y-o-Y.
Total issuances for FY26 neared Rs 14 trillion.
Issuances in March alone stood at Rs 2.14 trillion, reflecting banks’ increased reliance on these short-term instruments as system liquidity remained tight despite RBI measures to inject funds. Credit growth outpacing deposit mobilisation has also led to balance sheet mismatches, which CDs have helped bridge.
Saurabh Bhalerao, associate director, CareEdge, said the year-end numbers appear slightly overstated due to changes in the reporting period.
“However, credit momentum has picked up in recent months, especially from corporates, NBFCs, and MSMEs.
"Activity in the bond market has remained muted due to elevated yields, while bank funding has become more attractive for corporates.
"These growth levels may be difficult to sustain in FY27 unless banks step up deposit mobilisation,” said Bhalerao.
Meanwhile, rating agencies project that bank credit will grow at around 13-14.5 per cent in FY27, driven by MSME and retail segments.
Deposit growth is expected to lag, at around 11-12 per cent.
Tailwinds from regulatory and government measures introduced in FY26 are expected to support credit growth going forward. However, the extent of these benefits may taper over time, with varying impacts across corporate, MSME, and retail segments.
The duration and intensity of the West Asia conflict, and its broader macroeconomic implications, could also influence the trajectory of credit growth.
A sustained pickup in deposit growth will be crucial, given the widening gap between credit and deposits, experts noted.
