Context:
Despite a 100 basis points (bps) cut in the policy repo rate by the Reserve Bank of India (RBI) between February and June 2025, banks have maintained their credit growth guidance at 11–13% and deposit growth at 9–10% for FY26. This mirrors the trend observed in FY25 and indicates continued subdued demand and liquidity pressures.
Key Highlights:
Current Growth Projections Unchanged
- Banks are not revising loan or deposit growth guidance due to:
- Weak Q1 credit demand
- Challenges in retail deposit mobilisation
- Market uncertainties
CRR Reduction and Festival Demand Awaited
- The CRR cut (in four phases from September to November) and festival season are expected to stimulate demand.
- A State Bank of India (SBI) report estimates that CRR cuts could unlock resources supporting 1.4–1.5% additional credit growth.
Finance Ministry Pushes for Loan Expansion:
- In a recent meeting, the Ministry of Finance urged PSBs to enhance credit flow post-rate cuts.
- Despite policy easing, loan offtake remains soft, particularly for:
- Unsecured personal loans
- Mortgages
- NBFC lending, where banks are cautious
Microfinance and Liquidity Outlook
- Stress in the microfinance sector may begin to ease by September, aiding credit recovery.
- RBI’s policy actions have created a liquidity surplus, but transmission to credit growth is uneven.
