Credit Demand Rebounds As Loan Growth In Indian Banks Accelerates In December Quarter

Loan growth in Indian banks showed a clear revival in the December quarter, signalling a turnaround in credit demand after a sluggish first half of 2025. Major lenders such as HDFC Bank, Kotak Mahindra Bank and Bank of Barodareported stronger lending momentum, reflecting improving consumer and business confidence in the world’s fastest-growing major economy. 

According to the RBI’s Weekly Statistical Supplement on Scheduled Commercial Banks, released on December 1, 2025 (Table 1: Aggregate Deposits and Bank Credit) and available on the Reserve Bank of India website, bank credit growth had weakened mid-year before recovering steadily.

As per the latest data, overall bank credit grew 11.5 percent year-on-year in November 2025, improving from 9.9 percent in the quarter ended June 2025 and 11.1 percent in March 2025, showing that loan growth in Indian banks has regained momentum. Brokerage Emkay noted in a research report that “overall systemic credit growth is now around 11.4 percent year-on-year, up from a low of about 9 percent in May 2025,” pointing to a clear inflection in the lending cycle.

The revival is being driven mainly by retail segments. Emkay highlighted that secured gold loans and vehicle loans are currently acting as key growth engines, a trend also reflected in industry-level data tracked by LoansJagat in its report on improving credit demand

Large Banks Lead The Recovery

Among large private lenders, HDFC Bank’s gross loans rose 11.9 percent in the December quarter, accelerating sharply from 9.9 percent in September and 6.7 percent in June, as reported by The Economic Times:

The bank has been navigating balance sheet adjustments after its July 2023 merger with HDFC Ltd, which added a substantial loan book but comparatively fewer deposits, increasing pressure to balance growth and liquidity.

Kotak Mahindra Bank reported a 16 percent rise in net advances for the quarter ended December 31, its fastest pace in the current financial year, according to coverage by Business Standard:

Meanwhile, Bank of Baroda’s global advances grew 14.6 percent as of December-end, improving from 11.9 percent in September and 12.6 percent in June, as tracked by Moneycontrol:

Bank-Wise Loan Growth In December Quarter
 

Smaller lenders also posted strong numbers. CSB Bank recorded 29 percent growth in gross advances, while AU Small Finance Bank’s loans rose 24 percent, showing that loan growth in Indian banks is broad-based rather than limited to only large institutions. These trends have also been highlighted by LiveMint in its banking sector coverage:

A Look At The Credit Cycle So Far

Loan growth in Indian banks had slowed sharply in mid-2025 due to tighter regulations, liquidity constraints and risk aversion in certain unsecured segments. The RBI Weekly Statistical Supplement dated December 1, 2025 clearly shows that credit growth slipped to 9.9 percent in the June quarter before rebounding steadily towards 11.5 percent by November 2025.

System-Level Credit Trend

The recovery has been aided by festive season spending and the government’s consumption tax cuts, which boosted demand for consumer loans, vehicles and gold financing. Outlook Money has also pointed to this trend in its banking sector analysis:

A New Challenge: Liquidity Pressure

While loan growth in Indian banks is accelerating, deposit growth is not keeping pace. According to Macquarie Research, the loan-to-deposit ratio has climbed to 81.6 percent, which is now at an all-time high, indicating rising liquidity pressure across the system.

This widening gap means banks may either need to step up deposit mobilisation or moderate loan growth to maintain balance sheet stability.

Why This Matters?

The rebound in loan growth in Indian banks is critical for supporting economic expansion, boosting consumption and sustaining investment momentum. However, experts caution that the durability of this recovery will depend on how effectively banks manage funding constraints in the coming quarters.

Conclusion

Loan growth in Indian banks has clearly turned the corner in the December quarter, but the next phase will test how sustainably this momentum can be maintained.