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GST Cuts Fuel Credit Revival: Growth to Hit 13% by FY27, Says Report

Credit growth in India is showing a strong revival, expected to reach 12% in FY26 and improve to 13% in FY27, according to a Motilal Oswal report. This recovery, driven by consumption-led demand following GST cuts, has seen system credit growth rise to 11.7% as of December 2025. Deposit growth is projected to remain steady at around 10%, though banks face challenges in mobilizing low-cost funding. Supportive measures like the full CRR cut and regulatory actions are anticipated to further bolster credit expansion in the coming months.

Key Points: Credit Growth to Reach 13% in FY27, Spurred by GST Cuts

  • GST cuts drive credit revival
  • Growth seen at 12% in FY26, 13% in FY27
  • Deposit growth stable near 10%
  • CRR cut, regulatory measures to support expansion
2 min read

GST cuts spur credit revival; growth seen at 12% in FY26, 13% in FY27: MoSL

Motilal Oswal report forecasts credit growth at 12% in FY26, rising to 13% in FY27, driven by consumption demand post-GST cuts. Deposit growth steady at 10%.

"Credit growth gaining traction; margin trajectory mixed... Deposit growth stable at 9.7 per cent - Motilal Oswal Financial Services"

New Delhi, January 2

Credit growth in the country is expected to remain at around 12 per cent year-on-year in FY26 and improve to nearly 13 per cent in FY27, while deposit growth is likely to stay steady at about 10 per cent year-on-year in FY26, according to a report by Motilal Oswal Financial Services.

The report said that system credit growth has started showing early signs of revival. As of December 12, 2025, system credit growth improved to 11.7 per cent year-on-year, with year-to-date growth at 7.7 per cent. This marks a recovery from the low of 8.9 per cent recorded in May 2025.

It stated "Credit growth gaining traction; margin trajectory mixed... Deposit growth stable at 9.7 per cent".

The report highlighted that growth momentum has strengthened over the past few months and has remained above 10 per cent since July 2025.

According to the report, the credit cycle has seen a meaningful pickup following GST cuts, with system credit growth tracking above 11 per cent in October and November 2025. This recovery has been driven largely by a consumption-led improvement in demand.

The report also noted that the full 100 basis point Cash Reserve Ratio (CRR) cut is now in place, and along with recent supportive regulatory measures, this is expected to provide further support to credit expansion in the coming months.

On the back of these developments, the report said it expects system credit growth to remain at 12 per cent or higher on a year-on-year basis in FY26 and improve further to around 13 per cent in FY27.

Within its coverage universe, the report expects large private sector banks to record growth of around 3-4 per cent on a quarter-on-quarter basis, while mid-sized banks are likely to grow at a faster pace.

On the deposit side, the report pointed out that system deposit growth has remained stable at 9.7 per cent year-on-year as of December 2025. Deposit growth has largely stayed range-bound at 9-10 per cent over the past year.

The report said competitive intensity in deposits remains elevated, with banks continuing to face challenges in mobilising low-cost funding.

However, the report added that ongoing repricing of term deposits is expected to lead to a moderation in the cost of funds during the third and fourth quarters of FY26. This is likely to partially offset the impact of the recent 25 basis point repo rate cut by the Reserve Bank of India.

- ANI

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Reader Comments

S
Sarah B
Good to see data backing up the recovery. As someone who works in finance, the pickup from 8.9% to 11.7% is significant. The challenge remains deposits though - if banks can't get cheap funding, will loan rates really come down for end consumers?
V
Vikram M
Accha hai! Positive signs for the economy. But I have a question - will this credit growth reach smaller cities and rural areas, or is it mostly concentrated in metros? Inclusive growth is key.
R
Rohit P
Mid-sized banks growing faster is interesting. Maybe they are more agile in lending to newer businesses. Hope the RBI's rate cut and CRR reduction benefits get passed on quickly. More money in the system should help control inflation too.
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Priya S
While the numbers look good on paper, I'm not feeling this 'consumption-led demand' on the ground. My small business is still finding it tough to get a loan without excessive collateral. The report sounds optimistic, but implementation is everything.
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Nikhil C
Stable deposit growth at 10% while credit grows at 12-13%... this gap needs watching. Banks might have to offer higher FD rates again to attract funds, which could pressure their margins. Complex balance to maintain.

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