Bank credit growth at 3-month high. Revival or festival driven?

Bank credit

India’s bank credit growth rose to 10.22 percent year-on-year in the fortnight ended August 8, the highest in more than three months. Though the rise in demand is a positive sign, data suggests a full recovery is still some distance away.

According to Reserve Bank of India (RBI) data, average credit growth, so far, in FY26 (April–August) stands at 9.94 percent, significantly lower than the 13.94 percent average registered in FY25. The gap shows that while credit expansion is improving, the pace lacks previous year’s robust growth trajectory.

Experts are divided on the reason for revival. Some argue that the monetary and fiscal policy is helping, while others suggest it may be more of a seasonal lift tied to upcoming festivals.

“Rate cuts lower interest rates, that is, reduce borrowing costs, which is an indirect stimulant for growth,” Sanjay Agarwal, senior director at CareEdge Ratings, said. He, however, cautioned that goods and services tax (GST) reforms have only been proposed not implemented. As a result, “this could result in a short-term deferral in the acquisition of big-ticket purchases in anticipation of lower prices ahead.”

Sunny Agrawal, head, fundamental research, SBI Securities, said tax relief, lower rates and festival sentiment would together drive retail credit flow, adding the current policy mix is likely to have a multiplier effect on credit demand during the festive period.

Despite these positive indicators, the lower credit growth compared to FY25 shows that the economy is still operating below its lending potential.

“We should keep in mind that the growth rate is significantly lower than the numbers witnessed last year,” Agarwal said.

It also shows that corporate loan demand, which is a key driver of investment and capex cycles, remains subdued, even as retail credit picks up.

CRR cut to provide further boost

Experts said the Reserve Bank of India’s phased Cash Reserve Ratio (CRR) cut between September and November will inject more liquidity into the banking system, freeing up funds for lending and helping banks meet seasonal demand.

“The CRR reduction will ease funding pressure and enable banks to offer more competitive loan rates,” Agarwal said.

While credit growth remains below FY25’s peak, the recent momentum and policy support signal a positive outlook for sustained expansion in bank lending in the coming months.