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In the fortnight ended October 3 2025, India’s banking sector saw a notable shift in momentum: credit growth rose to 11.4 per cent year-on-year, surpassing deposit growth of 9.9 per cent in the same period. 

This uptick arrives amid a complex macro-financial landscape characterised by post-festival demand, regulatory nudges by the Reserve Bank of India (RBI), and changing behaviour from both borrowers and depositors. 

The following article delves into the drivers of this trend, analyses the underlying numbers (with accompanying tables), explores implications for banks and the broader economy, and assesses whether this hints at a durable recovery in bank credit growth.

Credit and Deposit Growth: Recent Trends

Understanding the interplay between credit growth and deposit mobilisation offers a window into banking sector dynamics.

Before presenting the relevant figures, it is useful to note that deposit growth serves as a key enabler of bank lending, if deposit mobilisation slows, banks may face constraints on credit expansion unless they access alternate funding. 

Conversely, strong credit growth ahead of deposits can, in theory, raise the banking system’s leverage or credit-to-deposit ratio, with implications for liquidity and risk.

Here are the latest figures:
 

In this period, credit growth gained a full 1.0 percentage point year-on-year, rising from 10.4 % to 11.4 %, while deposit growth moved from 9.5 % to 9.9 %. The fact that credit is growing faster than deposits suggests banks are increasingly deploying capital into lending. This could reflect improved loan demand (especially around the festival season), regulatory encouragement of lending, and better business sentiment.

What’s Driving the 11.4 % Credit Growth?

Several factors have contributed to the pickup in credit growth over this fortnight. Understanding these helps assess whether the rise is temporary or part of a more sustained uptick.

1. Festive season and consumer demand

Banks reported that during the fortnight, fresh credit disbursements amounted to about ₹3.63 trillion, compared with only ₹1.02 trillion in the preceding fortnight. This surge likely reflects the festive season and consumer spending uptick, which boosts demand for retail loans (home, vehicle, consumer durable) and business credit (inventory, trade finance). The boost in fresh disbursements implies that the acceleration in overall outstanding credit is not just base-effect but actual demand.

2. Regulatory impetus from the RBI

The RBI has introduced marked policy measures to stimulate credit flows: allowing banks to finance acquisitions of non-financial firms, increasing limits on loans against securities, tweaking risk weights for home loans and NBFCs, and specifically seeking to lower cost of infrastructure financing by NBFCs. These measures reduce the regulatory drag and cost of lending, helping banks take on more credit growth.

3. Lower interest rates and improved liquidity

With policy rates cut in recent months, banks’ lending rates for fresh rupee loans fell by about 55 basis-points, and weighted average domestic term deposit rates also declined by more than 100 bps since February. The softer cost of funds and improved liquidity make credit more attractive for lending and borrowing alike. This enables banks to expand lending even while deposit growth remains modest.

4. Sectoral pick-up aligning with macro tailwinds

Indicators suggest an improvement in sectors such as manufacturing, infrastructure, and services, aided by a favourable monsoon, GST rate cuts, and increased capital expenditure. Bankers remain moderately optimistic that loan demand from agriculture, mining, manufacturing, infrastructure and services will pick up in Q3. This structural pick-up supports the observed credit momentum.

5. Underlying base effect and gap with deposits

Credit growth at 11.4 % represents an acceleration but remains below the double-digit highs seen in prior years. The moderate base allows some catch-up. 

Meanwhile, the deposit growth rate of 9.9 % means banks are experiencing a widening credit-to-deposit growth gap (credit growing faster than deposits), which could signal banks drawing more on other funding or facing higher ratio of loans to deposits, something to watch for potential liquidity or risk implications.

Together, these factors suggest the 11.4 % figure is not purely a statistical blip but has a sound demand-regulatory-liquidity foundation. That said, sustainability will depend on whether underlying loan demand (especially from industry) holds up and whether banks maintain risk-appetite.

Segmental Patterns and Emerging Weaknesses

While the aggregate credit figures are encouraging, a deeper look at segmental lending reveals variation in momentum across industries, personal loans, NBFCs and large corporates.

Industry & infrastructure: Lending to industry remains subdued, with various reports indicating that credit growth to large industry hovered around 6 % in July 2025 and infrastructure credit growth lingered at under 2 % in that month. This suggests the recovery in bank credit is still heavily driven by retail, consumer and services segments rather than heavy industrial capex.

Personal loans and NBFC exposure: Unsecured personal loans, credit cards and NBFC credit continue to face headwinds. In July 2025, gold-based loans grew sharply (due to classification changes and gold price rise), but other personal loans decelerated. Banks are cautious of risk-weights and delinquencies in these segments. NBFC credit growth is also lagging, and its share in total bank credit has fallen.

Deposit growth & credit‐deposit ratio pressure: As deposit growth lags credit growth, banks may need to rely more on wholesale funding or interbank borrowings. This raises questions about liquidity and cost of funds, potentially squeezing margins if lending rates rise or deposit cost rebounds.

Base effect and comparison with previous years: The 11.4 % figure is up from 10.4 % but still short of the peak expansion in earlier years (e.g., above 13–14 %). Moreover, weaker segments and risk concerns mean the overall quality and sustainability of credit growth must be cautiously interpreted.

Therefore, while the headline number looks positive, it conceals a credit expansion still driven by certain segments, with others lagging and structural risk factors present.

Table: Historical Credit Growth Comparison

To place the current 11.4 % figure into context, here is a brief snapshot of credit growth over recent months and years.

The following table summarises how credit growth has evolved over time in India, highlighting both the moderation and recent uptick. This helps assess how far the banking sector might have to travel to return to more robust growth.
 

The upward movement from 9.9 % in July to 11.4 % in early October suggests a rebound in credit momentum. Yet, even at 11.4 %, the growth rate remains below peak periods of strong expansion. 

It also implies that banks are still in the early stages of a recovery in lending, rather than at full throttle.

Implications for Banks, Economy and Policy

The pickup in credit growth has multiple implications, positive in many respects, but also carrying potential caveats.

For banks
Banks will welcome stronger credit growth as it allows better utilisation of balance sheets, improved margins (if lending rates hold), and potential growth of fee-based income from larger loan books. 

Nonetheless, the faster credit growth relative to deposit growth raises caution: banks must keep an eye on asset quality, funding mix, credit-deposit ratios and incremental risk. In segments where credit is growing fastest (e.g., consumer, gold-loans), banks must manage risk-tail carefully.

For the economy
Credit growth is closely tied to investment and consumption. The uptick implies stronger consumer demand and work in progress in corporate investment. If sustained, it could support the overall growth momentum of the Indian economy, especially as the RBI forecasts growth at ~6.8 % for FY26 and emphasises credit flow as a key lever. 

A sustained credit upswing can help capital formation, infrastructure build-out and job creation.

For policy
The RBI’s moves to stimulate credit appear to be beginning to show some effect. The regulatory loosening of risk-weights, support for NBFCs/infrastructure financing, and encouragement of bank lending signify a shift from purely caution-driven regulation to calibrated growth support. However, policymakers must balance growth impetus with financial stability, if credit expands too rapidly in weaker segments or funding becomes costlier, systemic risks could emerge.

Risks to watch
 

• If deposit growth stalls further, banks may face higher cost of funds or funding mismatches.
   
• If growth becomes concentrated in high-risk segments (unsecured personal loans, gold‐loans, NBFC intermediated), asset quality may suffer.
   
• If broad-based industrial capex and large corporate lending do not pick up, the growth may be skewed and fragile.
   
• External shocks (global demand slumps, commodity price spikes, inflation) could reverse sentiment quickly.

Conclusion

The recent figure of 11.4 per cent credit growth in the fortnight ended October 3 2025 marks a meaningful improvement for India’s banking sector. Backed by festival-season demand, regulatory encouragement and improved liquidity, the uptick offers hope of a revival in bank lending. 

However, the growth is still modest compared to past peaks and is uneven across sectors. The widening gap between credit and deposit growth hints at potential funding pressures. 

For the rebound in credit to be durable, banks will need to expand lending beyond consumer segments into industry and infrastructure, deposit mobilisation must strengthen, risk management must remain robust, and policy-makers must ensure a fine balance between growth and stability. 

If these conditions hold, we may well be seeing the early innings of a renewed credit cycle, but the run-up has only just begun.
 

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