After moderating in 2024-25, banks’ credit growth is expected to slow further in 2025-26 as they take a cautious stance on unsecured loans. According to Reserve Bank of India (RBI) data, the credit growth eased to 11.13% in FY25, with outstanding bank credit reaching Rs 181.29 lakh crore as of March 7. This marks a significant slowdown from the 20.18% expansion in FY24.
“The RBI has expressed concerns over high credit-deposit (CD) ratio of banks. Some private banks have high CD ratio and they would like to bring it down by moderating their credit growth,” said a senior official of a private bank. “Delinquency in unsecured loans is relatively high and banks will be cautious in this category.”
The retail credit growth of banks has halved due to a slowdown in unsecured loans, according to RBI data. The credit growth sharply fell to 12% in January 2025, compared with 29% in the year-ago period, driven by a weaker growth in personal loans. Growth in other personal loans, which include unsecured loans, declined to 9% in January 2025, from 23% in January 2024.
The RBI on February 25 reduced risk weights on bank loans to NBFCs and MFIs to 100% from 125%. However, it has retained risk weights for unsecured loans at the same level. An increase in risk weights makes it more expensive for banks to lend as they are required to set aside more capital for such loans.
“Banks are likely to go slow on unsecured loans and hedge against likely asset quality issues, as segments like credit cards are turning delinquent. Corporate credit is also not certain,” said Madhavankutty G, chief economist, Canara Bank.
Banks’ struggle for deposit mobilsation may continue as interest rates are expected to fall, with the RBI commencing the rate-cut cycle. Despite hike in fixed deposit rates, deposit growth continues to lag the credit growth. Total deposits by 10.24% in 2024-25 to reach Rs 225.1 lakh crore as of March 7. Deposit had grown by 13.5% in FY24. While total deposits may not grow strongly, bankers expect some relief in current account-savings account (CASA) growth in FY26.
“We expect some improvement in CASA growth from the second half of FY26 as interest rates on fixed deposit are likely to come down following the cut in repo rates. With difference in rates between fixed deposit and saving deposits reducing, funds will flow back to CASA,” said executive director of a public sector bank.