This article analyses CRISIL’s latest projections regarding Indian banks’ credit growth in FY 2025-26, explores what “deposit accretion” means, how households’ role in deposit growth is changing, why corporates may avoid traditional bank loans in favour of bond markets, what is RBI’s stance & policies, and what weak deposit accretion and other factors imply for asset quality.

What is Deposit Accretion?

“Deposit accretion” refers to the incremental increase in deposits in banks over a given period. It is the growth in deposits (new deposits + renewals – withdrawals) that banks collect, which enlarges their liability base and funds available for lending.

Think of a water reservoir (the bank) that needs inflows (rain, tributaries) to keep its water level sufficient for demands (usage, irrigation). Deposit accretion is like the rain + tributaries – evaporation; you need steady inflows to ensure you can supply water without drying up or using up stored reserves.

Advantages vs Disadvantages of Deposit Accretion for Banks

Here is a table summarising how deposit accretion helps banks, and where weak accretion poses risks:

Aspect	Advantage if Deposit Accretion is Strong	Disadvantage / Risk if Deposit Accretion is Weak
Funding base for lending	Provides low-cost, stable funds so banks can expand credit without high reliance on expensive borrowings.	Banks may depend more on costly wholesale funding, CDs, or bond markets; higher cost of funds and reduced margin.
Stability / liquidity	Deposits (especially CASA and stable household savings) are sticky and less volatile, aiding liquidity planning.	If households reduce savings or shift away from bank deposits, deposit growth becomes unstable; risk of sudden withdrawals or flight to other instruments.
Regulatory buffers & ratios	Helps in meeting statutory and regulatory requirements (like CRR, SLR) and keeping overall funding mix healthy.	Weak deposit accrual may force higher reliance on other funding sources that are less favourable under regulation, affecting ratios.
Cost of funds / margins	Lower cost deposit funds (especially savings and current accounts) help maintain net interest margins.	If banks must offer higher rates to attract deposits, or resort to expensive funding, margin pressure increases.

Household Contribution Decline & Impact (from CRISIL)

CRISIL has flagged that in recent quarters, the contribution of households to deposit accretion has declined, which has consequences: weaker deposit stability, less liquidity cushion, and more stress in small business (MSME) lending since alternate or wholesale funding is more expensive or less reliable. All this could feed into asset quality deterioration.

However, in the public reports I found, exact numbers for household share in deposit accretion decline in Q4 FY2024-25 or in the latest quarter are not clearly broken out (in CRISIL’s public documents) in the way “household vs non-household deposit accretion” is specified.

I couldn’t find a table with “household share of deposit accretion in Q4 FY25 vs Q4 FY24” with bank-wise data. So this remains a data gap: the exact magnitude of decline in household contribution. CRISIL’s statements are qualitative: that household contribution has dropped.

Recent Trends of Deposit & Credit Growth

Below is a table summarizing recent deposit growth, credit growth, and some metrics.

Metric	Value / growth	Time Period	Notes / Comparison
Bank credit growth (non-food advances)	9.5 % YoY	Q1 FY 2025-26 (April-June)	CRISIL says Q1 credit growth was slower i.e. 9.5%.
Credit growth in Q1 FY 2024-25	Data: higher (double‐digit)	Q1 FY 2024-25	While I did not find a precise % in these sources, comparison shows credit growth in early FY 2024-25 was stronger, often > double-digit ( 11-12+ %) in similar periods. The base was easier.
Deposit growth	~10.0-10.4 % YoY	early FY 2025-26 / Fortnights (e.g. fortnight ending May 16, 2025)	For example: deposits totalled Rs 228.9 lakh crore, rising 10.0% YoY, down from 12.7% a year ago.
Credit vs Deposit growth (same period)	Credit 9.8%, Deposits 10.0% YoY	Fortnight ending May 16, 2025	Deposits grew marginally faster than credit during that period.

Summary of Table / Impact:

Credit growth in Q1 FY26 was around 9.5-10%, which is notably lower than what similar periods in earlier years delivered.
Deposit growth remains steady at around 10% YoY, but the growth in deposits is slowing from earlier highs.
When deposit growth is steady but credit growth is slower (or vice versa), it affects the credit-to-deposit ratio, margin pressures, and the ability of banks to expand lending.

Given the qualitative inputs from CRISIL that household deposit accretion is falling, even if total deposits are growing, shifts away from household savings (toward other instruments) may reduce the stability and predictability of such funds.

Credit Growth in FY 2025-2026

CRISIL’s forecasts, performance in Q1, and outlook for H2 FY26 paint this picture:

Q1 FY26 Credit Growth: CRISIL reported that credit growth in Q1 of FY2025-26 was 9.5% YoY.
Q1 FY25 Credit Growth: While the exact CRISIL number for Q1 FY25 is not consistently published in the recent CRISIL summaries I accessed, comparisons suggest credit growth in Q1 FY25 was significantly higher (double-digit). For example, in Q1 FY25 credit growth was close to or above ~11-12% (or more in some reports), especially as many sectors had less rate pressure and lower base effects. [Exact comparison numbers are somewhat less available in public CRISIL publications.]
FY25 Base: Bank credit growth in FY2024-25 is estimated at 11.0-11.5% YoY; deposits in FY25 grew about 10.3% YoY.
Forecast for FY26 Overall: CRISIL expects full-year bank credit growth to be 11-12%, or “inch up to 12%” under favourable conditions. Some public reports also say “12-13%”.
Second Half (H2) FY26 Outlook: CRISIL expects a pick-up in credit growth in H2 (October 2025-March 2026), potentially bringing overall growth closer to the 12-13% range if transmission of rate cuts, regulatory tailwinds, etc., work as intended. Corporate credit in particular is expected to revive in H2.
Projections for Corporate vs Retail: Corporate credit growth is forecast at about 9-10% for FY26, improving over FY25 (~8%), while retail credit is expected to grow faster (13-14%).
RBI’s Expectations: I did not locate a public RBI statement with precise split expected for Q3 vs Q4 credit growth in FY26 in CRISIL or RBI documents accessible to me.

RBI tends to monitor sectoral credit demand, monetary policy, inflation, etc., but no explicit forecast (in the sources I found) that says “credit growth in Q3 will be X%, credit growth in Q4 will be Y%”.

Why Corporates Don’t Always Take Bank Loans?

Corporates’ decision to borrow (or not) from banks depends on interest rates, cost of funds, flexibility, speed, and comparative attractiveness of alternative financing (bond markets, commercial paper, etc.). Part of this relates to how various loan rates are structured, how interest rate cuts (like repo) feed through into those, and where delay / friction lies.

Types of Lending Interest Rates & Transmission Delays

Here are key types of interest rates relevant in bank lending:

Type of Lending Rate	Definition / Features	Lag in Reflecting Repo Rate Cuts
Fixed rate	Interest rate fixed for some period (loan term or some years). Insulated from immediate changes in policy rates; cheaper/expensive depending on direction of movement.	Changes only when new fixed-rate borrowings occur; existing contracts unaffected until re-pricing or reset clauses. Lag could be many months or years, depending on maturity.
Floating rate / External Benchmark linked	Rate which is linked to an external benchmark (e.g. RBI policy rate, Prime Lending Rate, or others like a certain reference rate). These may be reset at defined intervals.	Faster transmission: some external benchmark-linked loans respond quickly (as soon as benchmark adjusts). CRISIL notes that “over 40% of loans are linked to external benchmarks” so these should reprice faster.
Marginal Cost of Funds-based Lending Rate (MCLR)	The internal benchmark banks use; reflects marginal cost of funds + some spread + tenor premium; often sticky; historically lagged in falling when policy rate falls.	CRISIL has noted that MCLR began easing only in July (2025) even after repo cuts earlier in the year, indicating lag of ~2-3 months (or more) depending on bank, tenor of loans.
External / Market Borrowing Rates (Bond / CP / NCD rates)	These are rates in bond markets, commercial paper, non-convertible debenture etc., determined largely by market expectations, credit spread, demand and supply.	Very quick to reflect repo or policy changes; yields fall faster, in many cases, because market adjusts immediately. Corporates observing cheaper costs via bond yields may prefer bond markets if bank lending still priced higher.

Which Type Best to Borrow On?

If you are a corporate (or borrower) trying to choose:

Floating rate / external benchmark linked loans are generally better when policy rates are falling, because you benefit sooner (once benchmark resets or when bank passes on the cut).
Fixed rate is better when interest rates are expected to rise (or if inflation risk is high), because you lock in cost.
MCLR-based / internal benchmark loans may lag, so may be suboptimal if speed of transmission matters.
Bond / capital markets may often offer more favourable cost, especially for large borrowers, if market rates and yields drop, plus it may be more flexible terms, longer maturity etc.

Corporates tend to prefer bond / market borrowing when bank rates (floating or MCLR etc.) lag behind bond yields, or when bond yields become comparatively lower, or when banks’ credit appraisal or loan conditions are stringent.

Why Businesses Prefer Bond Markets Rather Than Bank-Approved Loans

Cost Differential & Speed of Adjustment: As noted, bond markets reflect changes in interest rates quickly. If the repo rate is cut, bond yields (especially AAA, or corporate bond yields) fall rapidly. Bank lending rates, particularly on floating or internal benchmark loans (MCLR, etc.), may lag. This causes corporations to find bond market borrowing cheaper.
Terms & Flexibility: Bonds or CPs often offer larger amounts, more flexible repayment schedules, sometimes more favorable covenants. Bank loans may involve more documentation, collateral, and stricter covenants.
Avoiding Bank Balance Sheet Constraints / Regulatory Costs: Banks have capital constraints, regulatory risk weights, provisioning burdens. Lending to NBFCs, or other corporates may carry higher risk weights or regulatory costs. Sometimes the regulation makes bond financing more attractive.
Alternative Access and Liquidity: For large corporations, capital markets are well developed, sovereign support or confidence allows them to issue bonds or commercial paper rather than tie-up with banks.
Diversification of Funding: Corporates may prefer to diversify their debt sources: not rely only on banks, but also bond markets, which may offer longer maturities.

CRISIL explicitly noted that corporates shifting to bond markets was one of the reasons corporate credit growth was weak in Q1 FY26.

What is Deposit Growth? Why has RBI included a Four-Phased Cash Reserve Ratio (CRR) Reduction?

Deposit Growth

Deposit growth is the rate at which the total deposits held in the banking system grow over time. It includes new deposits, renewals, and possibly transfers between banks, minus withdrawals. It reflects household savings, corporate deposits, term deposits, savings accounts, etc.

Strong deposit growth is critical because banks use deposits to fund advances (loans), to maintain liquidity, to meet regulatory liabilities (CRR, SLR), and to ensure cost of funds remains manageable.

If deposit growth lags, banks may face “funding gaps”, be forced to depend on expensive wholesale or interbank borrowing, or reduce credit growth.

RBI’s Four-Phased CRR Reduction

To help boost deposit growth / liquidity for banks, RBI has proposed / implemented a four-phased reduction in Cash Reserve Ratio (CRR). Lower CRR means banks need to keep a smaller fraction of their deposits in non-interest bearing reserves with RBI, freeing up more funds to lend or to invest. The CRR reduction is phased to avoid liquidity risk or inflationary pressure.

From CRISIL’s reports:

As of September 2025, RBI is scheduled to reduce CRR in stages: the first cut effective from September. (One reference in MOFSL preview mentions “100 basis points cut in CRR, effective September 2025”.)
Exact phased schedule: Typically RBI gives notice before each phase; but I did not find a fully public schedule in the sources I reviewed that lists all four phases with amounts & dates. The referenced source says “four-phased cash reserve ratio reduction” in connection with boosting deposit growth; but precise details (percentages per phase, which date) weren’t fully detailed in the public extract I accessed. CRISIL mentions that CRR cuts will ease liquidity, support deposits, etc.

What is Asset Quality in terms of Loans?

Asset quality refers to how “healthy” a bank’s loan book is: specifically, the proportion of loans that are performing vs non-performing (i.e. stressed: not being serviced, in default or arrears). Key metrics include Gross Non-Performing Assets (GNPA), Net NPAs, Provision Coverage Ratio, etc. A high ratio of NPA means a higher share of loans are bad, which requires provisioning, reduces profitability, reduces capital, and imposes risk on the bank.

Analogy:

Imagine you lend out many umbrellas to people, and expect them to return them in good condition. If some borrowers don’t return them (or return broken ones), then your stock of usable umbrellas declines, affecting how many you can lend next time, and rendering your business risky. The more defective or unreturned umbrellas you hold, the worse your ability to do business.

CRISIL’s Projection & Comparison

CRISIL estimates that the gross NPA ratio for banks will be around 2.3-2.5% by end of FY 2026. It adds that while asset quality will show some stress (especially in MSME / small business/unsecured retail segments), overall GNPA will remain low compared to historical highs.

To compare:

As of March 31, 2025, CRISIL expected asset quality to be stable, with GNPA 2.4%.
Earlier, in March 2024, GNPA was higher ( 2.8%) in many reports.

So the forecast is for a modest increase or stability from current levels, but no large jump as seen in past cycles.

Conclusion

Putting it all together:

CRISIL projects that bank credit growth will accelerate in FY 2025-26, perhaps reaching 11-12% (or under favourable conditions even 12-13%), up from 11.0-11.5% in FY 2024-25. Retail credit and MSME/disbursals via NBFCs are expected to be among the stronger drivers.
The first quarter (Q1 FY26) was sluggish, with credit growth 9.5-10%, lower than in comparable quarters in earlier years; deposit growth is holding at 10%, but household contributions to deposit accretion are reportedly weakening, this matters because households’ deposits tend to be more stable and cheaper.
Corporates are being more selective in bank borrowing, preferring bond markets or market instruments when bank loan rates lag bond yields or when transmission of rate cuts is delayed. Types of lending (floating/external benchmark vs fixed vs MCLR etc.) matter, and delays in transmission of rate cuts into bank lending rates (especially MCLR) reduce attractiveness of bank loans.
Deposit growth is constrained by weak household accretion and competition from other savings / investment vehicles. RBI has introduced a phased CRR reduction (among other regulatory measures) to inject liquidity and encourage deposit growth.
Asset quality is forecast to remain relatively stable; CRISIL’s estimate for gross NPAs is 2.3-2.5% by end FY26. However, risks remain in small business, MSME, unsecured retail, and where household indebtedness is elevated.

The sluggish economy, weak household deposit accretion, and corporate substituting bank loans with bond market financing all pose challenges. Banks must manage funding costs carefully, improve transmission of rate cuts, ensure regulatory changes are implemented, and watch asset quality especially in riskier loan segments.

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