Retail lending, a key growth driver, fell from 16.3% in March 2024 to 12.9% in October. Deposit growth also moderated, with banks adding ₹13.8 lakh crore in deposits between April and November 2024, compared to ₹16.1 lakh crore in the same period last year.
Amid these challenges, experts see hope for FY2025, with measures like the Reserve Bank of India’s (RBI) recent 50-basis-point cash reserve ratio (CRR) cut offering relief.
Neelkanth Mishra, Chief Economist at Axis Bank, called the move “very necessary,” noting its potential to revive credit growth and inject liquidity into the economy. He explained, “This base money, which is high-powered money, could expand ₹1.16 lakh crore to ₹5-6 lakh crore over time, reviving credit growth.”
Mishra attributed the credit growth decline of 4.5-5% to tight liquidity conditions and regulatory measures, including curbs on loan-to-deposit ratios, which slowed the economy. However, he expressed optimism: “As government spending picks up, these tailwinds will build momentum into FY26.”
Also read: The two biggest drags on India’s economic growth may have started to ease
The CRR cut, implemented in December 2024, releases significant liquidity into the banking system, allowing banks to lend more freely. It also aligns with the RBI’s broader goal of balancing growth and inflation within the tolerance range of 2-6%.
Radhika Rao, Senior Economist at DBS Bank, highlighted the cut’s potential to boost banks’ net interest margins and profitability, estimating a 2-6 basis-point improvement. Meanwhile, Ajit Mishra, SVP of Research at Religare Broking, called the move pivotal for stimulating credit demand across sectors like real estate and consumer goods.
With measures like the CRR cut and rising government spending, FY2025 may see a revival in credit growth, offering much-needed momentum to India’s banking sector and broader economy.
In 2023, the Nifty Bank index recorded a growth of 12.8%, while in 2024, it has posted a year-to-date increase of 10.62%.
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