India’s credit growth hits 13.8 pc : What it means for borrowers and banks

New Delhi: India’s systemic credit growth accelerated to 13.8 per cent as of March 15, underpinned by strong liquidity buffers and a consumption-led recovery following GST cuts, according to a report released by Motilal Oswal Financial Services on Thursday.

The report noted that banks have scope to further expand their credit‑to‑deposit (CD) ratios, as deposit growth remained steady at 10.8 per cent while CD ratios rose to 83 per cent, reflecting faster credit off-take.

Banking sector dynamics

“Competition for deposits remains intense, and banks continue to face challenges in mobilising low-cost deposits. We expect term deposit rates to remain sticky given ongoing pressure on deposit mobilisation,” the report said.

The study highlighted that residual benefits from the cash reserve ratio (CRR) cut and the Reserve Bank of India’s support for the LCR-NSFR framework have aided the expansion of CD ratios, with public sector banks expected to gain the most.

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Credit growth and deposit projections

Motilal Oswal projected systemic credit growth to remain around 13.5 per cent year-on-year in FY27E, alongside healthy deposit growth of 11.5 per cent. Net interest margins (NIMs) are expected to remain range-bound, though mid-size banks are better positioned to report margin expansion.

The report also noted that the 25 basis points repo rate cut in December 2025 is expected to be fully reflected in lending yields in Q4, while funding costs remain elevated. Most banks have not adjusted term deposit or savings account rates following the rate cut, potentially impacting margin performance.

Asset quality and sector risks

Asset quality was broadly stable, though the report warned that the ongoing Middle East conflict poses cash flow and input cost risks for MSMEs, which could create stress in this segment.

For large private banks, certain exposures such as business loans and commercial vehicles (CVs) require close monitoring. While near-term impact appears limited, the report advised vigilance given geopolitical uncertainties.

Outlook

Overall, India’s banking sector remains on a growth trajectory, supported by rising credit demand, stable deposit flows, and macroeconomic resilience. Analysts emphasise that continued monitoring of interest rate transmission, asset quality, and MSME risks will be crucial to sustaining robust systemic credit growth.