Banking sector credit growth is likely to pick up due to the Reserve Bank of India’s (RBI) rate cuts, India Ratings and Research (IndRa) said on Thursday. Credit growth witnessed a slowdown in the last quarter of the 2024-25 financial year. IndRa said growth will pick up as the rate cuts are transmitted to borrowers.
IndRa said the RBI's proactive CRR cut and liquidity assurance are expected to catalyse further softening of lending rates in the banking system. "A sustained improvement in system liquidity and reduction in repo rates and CRR are likely to bode well for a pick-up in credit growth in the near term which has slowed down to about 9.0% year on year. Deposit growth could come under pressure with banks looking to an accelerated repricing of deposits,” says Karan Gupta, director financial institutions, Ind-Ra.
Credit growth had cooled from 19.4% in April 2024 to 9.9% in April 2025, largely owing to the base effect and lower growth in these sectors. IndRa expects credit growth of 13% to 13.5% year on year in the current fiscal year, but the mix is likely to change with the continued slowdown in lending to the NBFC and retail sectors. However, this might be offset by a private capex revival which will boost corporate sector growth.
Deposits are expected to grow 12% to 13% year on year for fiscal year 2025-26, as per IndRa, as banks compete to attract low-cost current account and savings account (CASA) deposits. Banks are announcing fixed deposit rate cuts across tenors as monetary policy transmission takes place.
The cash reserve ratio cut and repo rate easing infusing more liquidity into the banking system is expected to improve credit flow as banks have already begun announcing reductions in deposit and lending rates.
IndRa said the RBI's proactive CRR cut and liquidity assurance are expected to catalyse further softening of lending rates in the banking system. "A sustained improvement in system liquidity and reduction in repo rates and CRR are likely to bode well for a pick-up in credit growth in the near term which has slowed down to about 9.0% year on year. Deposit growth could come under pressure with banks looking to an accelerated repricing of deposits,” says Karan Gupta, director financial institutions, Ind-Ra.
Credit growth had cooled from 19.4% in April 2024 to 9.9% in April 2025, largely owing to the base effect and lower growth in these sectors. IndRa expects credit growth of 13% to 13.5% year on year in the current fiscal year, but the mix is likely to change with the continued slowdown in lending to the NBFC and retail sectors. However, this might be offset by a private capex revival which will boost corporate sector growth.
Deposits are expected to grow 12% to 13% year on year for fiscal year 2025-26, as per IndRa, as banks compete to attract low-cost current account and savings account (CASA) deposits. Banks are announcing fixed deposit rate cuts across tenors as monetary policy transmission takes place.
The cash reserve ratio cut and repo rate easing infusing more liquidity into the banking system is expected to improve credit flow as banks have already begun announcing reductions in deposit and lending rates.
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