India bank credit grows at 20 percent

India bank credit grows at 20 percent - bank credit — India bank credit grows at 20 percent

India’s bank credit growth has accelerated to about 20% year-on-year in the June 2026 quarter, its strongest pace in more than four years, according to a Bernstein report.

This growth was partly influenced by changes to fortnightly reporting requirements introduced in December 2025. After adjusting for the impact of these changes, Bernstein estimates underlying credit growth at about 18%.

The reported growth has been broad-based, although the strongest acceleration has been seen in industrial and services lending. Industrial lending benefited from a significant increase in borrowing by large companies, which account for nearly 70% of total industrial credit.

Lending to micro, small and medium enterprises also continued to expand at a healthy pace. Services credit strengthened as well, with bank lending to non-banking financial companies rising by more than 30% in recent months.

Higher borrowing costs in the bond market have encouraged non-banking financial companies to turn increasingly to banks for funding. The faster expansion in loans compared with deposits has raised concerns about banks’ funding position.

While deposit growth has picked up in recent months, it continues to trail credit growth, leaving the system-wide loan-to-deposit ratio near decade-high levels. Despite this, bank margins have remained broadly stable.

Rates on fresh loans and term deposits have largely stabilised, while lower certificate of deposit rates and reduced issuance have provided some relief on funding costs. The spread between yields on new loans and term-deposit rates remains wider than the corresponding spread across existing loan and deposit books.

This suggests that incremental loan growth continues to support margins. Bernstein noted that lending momentum remained robust in July as well, with the recovery broadening across sectors.

Increased borrowing by large companies and rising funding requirements among non-banking financial companies were key contributors to this momentum. The brokerage expects India’s banking sector to sustain healthy growth in fiscal 2026-27, helped by favourable liquidity conditions and an improvement in nominal credit growth.

However, it warned that potential monetary or regulatory tightening later in the year could moderate the pace of expansion.