31 October 2025 the banking system in India recorded credit growth of 11.3% year-on-year.
Meanwhile, deposits grew by 9.7% year-on-year in the same fortnight.
The total outstanding bank credit stood at around ₹193.9 trillion and deposits around ₹241.7 trillion by 31 October.
Why the Slowdown Matters
Credit vs Deposits
- When credit growth slows while deposit growth remains relatively strong, banks may face liquidity surpluses, meaning they have more funds than immediate lending demand.
- The gap between credit growth (11.3%) and deposit growth (9.7%) is narrowing, putting pressure on the credit-deposit ratio and possibly on margins for banks
Lending Demand & Economic Activity
- A lower credit growth suggests that either demand for loans is easing (from corporates, industry, consumers) or banks are more cautious in lending.
- Given that bank credit is a major driver of investment, consumption and economic growth in India, this moderation could signal a slowing pace of growth ahead.
Implication for Banks
- Banks may begin to look harder at retail, MSME and other segments with better yield or less risk to deploy surplus funds.
- With a slower pace of credit growth, net interest margins (NIMs) could be squeezed unless banks manage costs or improve other income sources.
- There is also the risk of credit funneling into lower-yielding assets or government securities if lending picks up slowly.
What’s Driving This Trend?
Several factors appear to be at play:
- Some segments like unsecured personal loans and credit cards have been flagged by the RBI for higher risk, leading to tighter underwriting and slower growth.
- The economy is experiencing mixed signals: while consumption and credit demand are present, maybe they are not as strong as in previous years, or banks are being selective due to risk concerns.
- Globally and domestically, uncertainties (inflation, external shocks, input cost pressures) may dampen aggressive lending or investment decisions.
- Regulatory and supervisory caution: the Reserve Bank of India has repeatedly cautioned banks against “exuberant” lending and new risk models.
Where Does This Stand Historically?
- In earlier years, bank credit growth in India had been significantly higher, often in double-digits well above 12-15% or more. For example, in October 2024 the growth was about 12.8% excluding merger impacts.
- The merger of major lenders (for example HDFC Bank with its parent) continues to cast a shadow on overall credit growth trends by altering bases and loan portfolios.
- The current figure of 11.3% suggests a tempered credit environment, which might be more sustainable but also indicates less explosive growth.
What Should Stakeholders Watch For?
For Banks
- How they deploy excess deposits: whether into productive credit, government securities or other assets.
- Demand from MSME, retail, infra sectors: monitoring segments that can drive growth.
- Asset quality trends: slower credit growth might help limit risk, but banks must stay vigilant.
- Interest margin pressure: managing cost of funds and yields.
For Policymakers
- If credit growth remains subdued, the RBI and government might consider further incentives or structural reforms to encourage lending.
- Monitoring the lag between credit growth and GDP growth: historically, credit tends to lead growth in India.
- Ensuring that segments like MSME, infra, manufacturing get adequate credit flow even in a moderate environment.
For Investors/Economy
- A moderating credit growth may hint at a more cautious economic outlook: investment plans may be delayed, large infrastructure rollouts may slow.
- But given the strengthening of deposits, banks’ balance sheets should remain broadly sound, which is a positive sign for banking sector stability.
- Watch for signs of revival: any uptick in corporate loan demand, pick-up in consumption loans, or a revival in NBFC lending could signal a turnaround.
Final Word
The data showing bank credit growth at 11.3% (and deposit growth at 9.7%) as of 31 October 2025 provides a telling snapshot of India’s banking landscape: one of moderation rather than frenetic growth.
While the slowed pace might raise concerns about economic momentum, the fact that deposit growth remains robust is a comforting counter-point for banking sector stability. The key going forward will be how efficiently banks deploy their funds, and whether credit demand revives in key sectors like infrastructure, MSME, retail and manufacturing.
