Credit growth in India’s banking system is showing meaningful signs of revival, supported by recent GST rate cuts, improved demand, and supportive regulatory actions — with system credit expected to grow around 12% in FY26 and nearly 13% in FY27. This trend reflects a gradual recovery in credit demand after a period of slowdown in the credit cycle.
Stronger Credit Momentum Emerging
A report by Motilal Oswal Financial Services highlights that:
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As of December 12, 2025, system credit growth improved to about 11.7% year-on-year, recovering from a low of 8.9% in May 2025 and staying above 10% since mid-2025.
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The revival in credit has been driven largely by consumption-led demand, supported by GST rate cuts that have helped stimulate activity across sectors.
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A full 100 basis-point Cash Reserve Ratio (CRR) cut is now in effect, enhancing liquidity in the banking system and providing further support for credit expansion.
Expected Trends in FY26–FY27
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Credit Growth Forecast: The report expects systemic credit growth to remain around 12% year-on-year in FY26 and to improve further to about 13% in FY27.
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Deposit Growth: Deposit growth has remained stable, at around 9.7–10% year-on-year, supporting banks’ ability to fund the expanding credit demand.
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Bank-Level Prospects: Within the banking universe, large private sector banks are projected to post moderate quarter-on-quarter growth, while mid-sized banks may record faster expansion due to more nimble lending strategies.
Why GST Cuts Matter for Credit Expansion
GST rate reductions — particularly on consumer and intermediate goods — have acted as a demand stimulus by lowering effective prices, boosting consumption, and contributing to stronger overall economic activity. This, in turn, has encouraged greater credit uptake among consumers and businesses. In addition, supportive monetary measures like CRR cuts have enhanced liquidity, enabling banks to lend more readily.
What This Means for the Economy and Markets
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Growth Support: Rising credit growth aids economic expansion by financing consumption, housing, MSME activity and capital investment.
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Banking Sector Dynamics: Banks may see improved asset quality and loan demand, especially in retail, personal loans, mortgages and SME segments.
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Interest-Rate Sensitivity: With credit growth picking up, banks may benefit from improved margins if deposit repricing stabilises and credit demand remains robust.
In summary, the convergence of GST-driven demand improvement, liquidity support (CRR cuts), and broader economic momentum is expected to lift systemic credit growth to around 12% in FY26 and 13% in FY27 a positive sign for the credit cycle and financial sector prospects.
Source: The Economic Times