Key Points

A volatile trading environment, marked by a constant threat of protectionist policies by the US has lent a significant degree of uncertainty to companies' investment plans, the Bank of Baroda report, authored by economist Aditi Gupta, said Wednesday.

The headwinds were reflected in slower credit offtake.

Credit growth by scheduled commercial banks (SCBs) moderated to 9.5 per cent in June 2025 (up to 27 Jun 2025), on a high base of 17.4 per cent in the same period last year. Credit growth this year has been lower than deposit growth in the corresponding period, in stark contrast to the trend seen last year.

The credit/deposit ratio stands at 78.9 per cent this year, only marginally lower than 79.3 per cent in the same period last year.

The slowdown in credit growth in 2025-26 appears to be broad-based, with almost all categories noticing a moderation in credit offtake.

Credit to the agriculture sector has moderated to 9.8 per cent this year, compared with 19.8 per cent in the same period last year. According to the Bank of Baroda economist, a part of the decline can be attributed to the high base.

Going ahead, growth is expected to bounce back on the back of a favourable monsoon, resilient service sector activity, and the government's front-loading of capital expenditure.

"Private investment should also see a pickup as uncertainty over US policies recede," the Bank of Baroda economist said.

Retail credit is also likely to inch up due to lower costs and festive demand.

"Ample liquidity along with a supportive regulatory framework and lower interest costs are likely to spur a pickup in credit offtake in the coming months," Aditi Gupta added.

"Expectations of an above normal monsoon, improved kharif sowing and higher reservoir storage suggest that credit offtake is likely to improve in the coming months."

- ANI