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Credit Growth Surges Amid Festive Demand, But Corporate Caution Caps Momentum

A new report from IIFL Capital shows India's banking credit growth is picking up pace. The improvement is largely thanks to strong festive season spending and recent GST cuts boosting retail loan demand. However, the analysts caution that weak corporate demand and slower deposit growth might put a ceiling on how much further credit can expand. The report also highlights a growing performance gap between private and public sector banks.

Key Points: IIFL Report on India's Credit Growth Momentum and Corporate Demand

  • System loan growth rose to 11.2% year-on-year in October, up from 10.4% in September
  • Growth is primarily driven by vehicle loans, NBFC lending, and unsecured retail segments
  • Report warns growth may be capped by muted corporate demand and slower deposit accretion
  • Private banks saw expanded spreads, while PSU banks faced pressure on fresh lending rates
3 min read

Credit momentum to continue in 2H, but growth likely to be capped by weak corporate demand: IIFL

IIFL report shows India's credit growth hit 11.2% in October, driven by festive retail demand, but warns corporate sector weakness may limit further expansion.

"We expect credit momentum to sustain in 2H, supported by resilient consumption trends, stabilizing unsecured AQ, and a seasonally strong 2H. - IIFL Capital Report"

New Delhi, December 1

With the strong festive demand and the GST cuts, the loan growth in the banking system has picked up pace in October and early November, according to a latest report by IIFL Capital.

The report noted that credit demand has improved after a period of softness, with retail-led consumption emerging as the key driver of growth.

As per the report, system loan growth rose to 11.2 per cent year-on-year in October 2025, higher than 10.4 per cent in September. The momentum continued into November, the report added this suggesting that credit momentum is improving and has likely bottomed out.

It stated, "We expect credit momentum to sustain in 2H, supported by resilient consumption trends, stabilizing unsecured AQ, and a seasonally strong 2H."

Financial year-to-date (FYTD) credit growth has now reached 5.6 per cent, surpassing 5.1 per cent in the same period last year. The firm attributed the October improvement to festive-led consumption and GST cuts, which boosted spending and supported higher loan demand across key segments.

However, it said "growth will likely be capped by muted corporate demand and slower deposit accretion (10.2 per cent yoy), with system LDR at approx. 80 per cent."

On a month-on-month basis, loan growth was led by vehicle loans, NBFC lending and unsecured retail loans.

The report also said it expects credit momentum to remain steady in the second half of the fiscal year, supported by resilient consumption trends, stabilising asset quality in unsecured portfolios, and the seasonal strength usually seen in the October-to-March period.

The firm also pointed out that nominal GDP growth remains slow, and the credit multiplier is already at a healthy 1.3 times, leaving limited room for aggressive expansion.

It highlighted a gap between private and public sector banks in terms of spreads and net interest margins (NIMs). Outstanding spreads for private banks expanded by 5 basis points in October, helped by an 11 basis point decline in the outstanding weighted average term deposit rate (WATDR).

In contrast, PSU banks saw flat outstanding spreads, while their fresh spreads fell 9 basis points due to a sharper decline in fresh lending rates, partly because of delayed MCLR adjustments.

It expects CRR (Cash Reserve Ratio) cuts to support NIMs (Net Interest Margin) by 7-9 basis points, and said that ongoing time deposit re-pricing should help offset the impact of a potential 25 basis point policy rate cut.

So the report outlined that loan growth in October and November has strengthened, driven mainly by festive-season consumption and GST-led demand revival.

- ANI

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Reader Comments

R
Rohit P
Vehicle loans and unsecured retail leading the charge! 🚗 This matches what I see around me - everyone is buying new cars and taking personal loans for upgrades. Hope the asset quality remains stable though.
A
Aman W
The gap between private and PSU banks is worrying. Private banks seem to be managing their spreads better. As a customer, I've noticed PSUs are slower to adjust deposit rates downwards. They need to be more agile.
S
Sarah B
Interesting analysis. The credit multiplier at 1.3x suggests the system is being efficient, but also that there's limited room for aggressive lending without risking stability. A balanced, steady growth approach seems prudent.
K
Karthik V
Festive season always gives a temporary boost. The real test is whether this momentum continues post-Diwali and into the new year. Corporate demand needs to revive for the growth story to be complete. Government should focus on that.
N
Nisha Z
As a small business owner, I agree corporate loan demand is muted. Banks are still cautious with lending to MSMEs despite all the schemes. The focus is too much on retail. Hope the second half sees a change. 🤞

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