Mumbai: Bank credit is likely to grow at 11–12 per cent this year compared to 11 per cent in the previous year owing to government and regulatory support, and a pick-up in consumption. Retail credit will gain the most and drive the overall credit growth, while other segments will be largely range bound, Crisil Ratings said.
Bank credit growth in the first quarter of this fiscal was muted because of a slower than expected revival in retail demand, continuing caution on unsecured lending and substitution by corporate bonds stemming from faster transmission of the repo rate cuts in that market. In the second half of this fiscal, however, credit growth is expected to pick up as the composite effect of government and
regulatory stimuli plays out.
Says Krishnan Sitaraman, Chief Ratings Officer, Crisil Ratings, “Retail credit, which comprises around 33 per cent of bank loans, is expected to grow higher at around 13 per cent this fiscal from 11.7
per cent last fiscal. The reduction in the goods and services tax should boost consumption, spurring retail credit demand.”
“Lower interest rates, benign inflation and income tax cuts introduced in the Union Budget are spurs, too. Within the retail segment, unsecured loans are expected to see faster growth, fuelled by the
consumption uptick and the statistical low-base effect of last fiscal” added Sitharaman.
Deposit growth, a crucial factor for sustainable credit growth, is seen as adequate for the expected uptick in bank credit, aided by the Reserve Bank of India’s measures to enhance systemic liquidity,
including a four-phased cash reserve ratio reduction and revision in the liquidity coverage ratio norms. Other measures, such as a reduction in risk weights on bank loans to non-banking financial
companies (NBFCs) and clarity on project financing guidelines are helpful as well.
Home loans remain the largest constituent of retail credit (over 50 per cent) and growth here will benefit from lower interest rates.
While gold loans are a relatively small proportion of the retail portfolio of banks, the segment has expanded rapidly and its growth will continue to be robust, said the domestic rating agency.
Credit growth in the corporate sector, which accounts for 38 per cent of bank loans, is expected to be marginally lower at nine percent this fiscal compared with 9.7 per cent last fiscal, weighed down by a
sluggish first quarter. Of the Rs 171 lakh crore corporate credit pie, banks account for 40 per cent, while capital markets contribute to over a third.
Says Ajit Velonie, Senior Director, Crisil Ratings, “There was a more than 60 per cent spurt in corporate bond issuances in the first quarter on-year because of the faster transmission of repo rate cuts compared with bank lending rates. This has had an impact on bank credit to corporates, which grew just 3.8 per cent on-year till July 2025. As the repo rate cuts cascade to bank lending rates, we will see some reversal of the substitution by the corporate bond market.”
Reliance on own funds by corporates, equity raising for planned spends and tariff-related uncertainties leading to postponement of capital expenditure as well as any future policy rate cuts that could prolong corporate bond market substitution, will bear watching.
