India's Banks Are Lending Again, and Gold Is Leading the Charge

Key Insights 

• India's non-food bank credit rose 15.9% year on year in FY26, with outstanding credit at around Rs 213 trillion as of March 31, 2026. Growth was led by gold loans, which surged 123% YoY, along with strong momentum in NBFC lending and industry credit, per an ICICI Bank report.

• After muted growth in FY25, bank credit expanded 16.08% YoY in FY26, the fastest pace since FY24, when credit in the system grew by over 20%. Deposit growth also rose 13.47% YoY, the highest since FY24, according to RBI data.

India's Credit Engine Shifts Back to High Gear

India's banking sector recorded strong credit growth in FY26, with non-food credit rising 15.9% year on year. 

Outstanding non-food credit stood at around Rs 213 trillion as of March 31, 2026, with growth accelerating to above 16% YoY, according to the ICICI Bank report. 

Retail lending grew 16.2% YoY, led sharply by gold loans which jumped 123% YoY. Lending to NBFCs surged 26% YoY, while commercial real estate credit rose 18% and industry credit grew 15%.

In the short term, this broad-based credit surge reflects real demand from households, small businesses, and large firms. 

The report cautioned that the acceleration in large industry and NBFC lending may be net interest margin dilutive for banks. 

Over the longer horizon, if deposit growth does not keep pace with credit, balance sheet mismatches could build pressure. 

The widening gap between credit and deposit growth has already pushed banks to rely more on short-term instruments like certificates of deposit.

FY26 Credit Growth: Segment by Segment

The table below maps the key credit growth figures from FY26. It puts the headline number in context across the segments driving India's lending surge.
 

Total banking credit on an absolute basis stood at Rs 213.61 trillion by the end of FY26, while deposits reached Rs 262.30 trillion, according to RBI data. 

The gap between credit and deposit growth rates is the key number to watch as FY27 begins.

What Rising Credit Means for Ordinary Indians?

For households and small businesses, faster credit growth is broadly good news. Lower borrowing costs, following the RBI's rate cuts, have made loans more accessible. 

The sharp rise in gold loans, which grew 123% YoY, reflects that many households are using their gold holdings as collateral to access quick credit. 

This is especially common in rural and semi-urban areas where formal credit has historically been harder to access. United Nations

NBFCs continue to serve borrower segments that banks often overlook. 

They hold 45% market share in micro-LAP loans and are estimated to reach an AUM of Rs 48-50 lakh crore by March 2026, supported by strong demand from MSMEs and retail borrowers. 

For small business owners, this wider access to credit is a direct positive with real impact on day-to-day operations. SDG Knowledge Hub

Analysts Flag Growth But Urge Banks to Watch Their Balance Sheets

Saurabh Bhalerao, associate director at CareEdge, said credit momentum has picked up notably, especially from corporates, NBFCs, and MSMEs. 

He added that bank funding has become more attractive for corporates as activity in the bond market has remained muted due to elevated yields. 

This is a structural shift in how large companies are raising money.

Experts noted that a sustained pickup in deposit growth will be crucial, given the widening gap between credit and deposits. 

The duration and intensity of the West Asia conflict, and its broader macroeconomic implications, could also influence the trajectory of credit growth going forward. 

Banks must balance lending ambition with funding stability in the quarters.

Conclusion

India's credit resurgence in FY26 reflects a healthier, more active economy. If deposit growth catches up and geopolitical risks stay contained, the banking sector is well-placed to sustain this momentum deep into FY27.

FAQs

Do they accept gold coins/22k jewellery or only ornaments?

Most lenders accept both 22k/24k gold coins and ornaments, though jewellery is preferred. Specifically, 22k hallmarked jewellery is accepted, while gold coins are usually accepted if they are bank-minted or, in some cases, BIS-certified up to a total of 50 grams. Raw gold (biscuits/bars) is typically not accepted.

Why do people in India still borrow money from gold loan companies when banks are offering better interest rates on their gold lending products?

People in India often prefer specialized gold loan companies (NBFCs) over banks for gold loans due to speed, convenience, and minimal documentation.