Bank Credit Growth Accelerates to Decadal High of 19.1% in August
Industry credit growth stood at 22 per cent as of July 2026, with services and retail sectors growing at 21 per cent and 17 per cent, respectively.
Mumbai: Scheduled commercial banks (SCBs) reported robust credit and deposit growth for the five months ending August 2026 nearing its highest level in a decade.
High credit growth has sustained in FY27 year to date driven by broad-based demand and enhanced systemic liquidity on account of bumper Foreign Currency non-resident bank deposits FCNR(B) of $127 billion.
Bankers and analysts expect growth momentum to continue for a large part of calendar year 2026, before gradually moderating to mid-teens toward the end of FY27 owing to a higher base effect.
According to the Reserve Bank of India’s (RBI) weekly statistical supplement, bank credit expanded 19.1 per cent year-on-year at end-August 2026, sharply higher than 10.3 per cent a year ago, while deposit growth accelerated to 17.8 per cent compared to 9.8 per cent in the previous year.
Outstanding bank credit stood at Rs 224 lakh crore as of August 31, 2026 while deposits were at Rs 279 lakh crore.
Loan growth was led by wholesale lending, with banks exercising better pricing power with corporates, even as retail growth remained robust in the mid-teens. Industry credit growth stood at 22 per cent as of July 2026, with services and retail sectors growing at 21 per cent and 17 per cent, respectively.
Within the retail segment, growth was driven by vehicle finance (19 per cent year on year), while growth in the credit card segment remained muted.
On the other hand, deposit growth picked up meaningfully from 12-13 per cent in 1QFY27 to 17.8 per cent year on year as of Aug 31, 2026.
Incentives on overseas borrowings and external commercial borrowings under the special forex schemes have also led multiple banks to raise borrowings overseas at attractive pricing, thus attracting foreign inflows, reducing borrowing costs for banks, and improving systemic liquidity.
“Overall, we expect growth momentum to continue for a large part of CY26, before gradually moderating to mid-teens toward the end of FY27, owing to a higher base effect. We have currently guided for 14.2 per cent FY27 growth for our banking universe (slightly lower due to our recent reduction in HDFC Bank’s growth estimates).
We envisage an upside risk of 100-150 basis points to our system credit growth estimates if macroeconomic variables (crude, bond yields, currency, and inflation) remain favorable,” said Nitin Aggarwal, research analyst, Motilal Oswal Financial Services.
Amitabh Chaudhry, MD and CEO at Axis Bank last week said that the FCNR B deposits could temporarily push bank lending above the normal growth trends.
However he said that the current 18-19 per cent credit expansion could moderate over the full year as the economy absorbs the surplus liquidity.
“I think I'll rely on my economists. They're saying 15-16 per cent (credit growth) for the year. I think this 18-19 per cent also has a base effect coming in, and FCNR(B) inflows could lead to some abnormal lending.
