After moderating in 2024-25, banks’ credit growth is expected to slow further in 2025-26 as they take a cautious stance on unsecured loans. According to Reserve Bank of India (RBI) data, the credit growth eased to 11.13% in FY25, with outstanding bank credit reaching Rs 181.29 lakh crore as of March 7. This marks a significant slowdown from the 20.18% expansion in FY24.
“The RBI has expressed concerns over high credit-deposit (CD) ratio of banks. Some private banks have high CD ratio and they would like to bring it down by moderating their credit growth,” said a senior official of a private bank. “Delinquency in unsecured loans is relatively high and banks will be cautious in this category.”
The retail credit growth of banks has halved due to a slowdown in unsecured loans, according to RBI data. The credit growth sharply fell to 12% in January 2025, compared with 29% in the year-ago period, driven by a weaker growth in personal loans. Growth in other personal loans, which include unsecured loans, declined to 9% in January 2025, from 23% in January 2024.
The RBI on February 25 reduced risk weights on bank loans to NBFCs and MFIs to 100% from 125%. However, it has retained risk weights for unsecured loans at the same level. An increase in risk weights makes it more expensive for banks to lend as they are required to set aside more capital for such loans.
“Banks are likely to go slow on unsecured loans and hedge against likely asset quality issues, as segments like credit cards are turning delinquent. Corporate credit is also not certain,” said Madhavankutty G, chief economist, Canara Bank.
Since interest rates are predicted to decline and the RBI has started the rate-cut cycle, banks may continue to struggle to mobilize deposits. Deposit growth continues to lag behind credit growth, even with increases in fixed deposit rates. As of March 7, total deposits have increased by 10.24% in 2024–2025 to Rs 225.1 lakh crore. In FY24, the deposit had increased by 13.5%. Bankers anticipate modest relief in current account-savings account (CASA) growth in FY26, even if total deposits would not expand significantly.
We anticipate that CASA growth will improve somewhat in the second half of FY26 because fixed deposit interest rates are probably going to decline after repo rates are lowered. Funds will return to CASA when the rate differential between savings and fixed deposit accounts narrows, according to the executive director of a public sector bank.
