India’s banking sector is witnessing a renewed momentum in credit growth, even as emerging global risks cast a shadow over the outlook.
According to the latest data from the Reserve Bank of India as of mid-March 2026, systemic credit growth has accelerated to around 14% year-on-year, marking a notable improvement from the 9–11% range seen earlier. Several banks reporting provisional quarterly updates have also indicated healthy sequential expansion. Analysts expect overall credit growth of roughly 15% year-on-year and 5% quarter-on-quarter across covered banks, with small finance banks (SFBs) leading the pace.
Among different segments, SFBs are projected to grow the fastest at approximately 25% year-on-year, followed by mid-sized private banks and public sector banks at around 16%, while larger private banks may see relatively moderate growth of about 13%.
However, this positive trend could face challenges. Ongoing geopolitical tensions in West Asia may dampen corporate investment, particularly in oil-sensitive industries. Export-focused micro, small and medium enterprises are also seen as vulnerable to cash flow pressures, which could prompt lenders to adopt a more cautious approach. Any further escalation in global risks may weigh on credit growth, especially in the first half of the next financial year.
On the deposits side, growth continues to trail credit expansion, rising by about 10.8% year-on-year. This has pushed the system-wide loan-to-deposit ratio to a multi-year high of roughly 83%. Despite this, the fourth quarter typically brings stronger deposit mobilisation, particularly in low-cost CASA deposits, and banks have reported improved balances.
Competition for deposits remains intense, keeping the cost of funds elevated. As a result, banks have been slow to pass on the benefits of recent rate cuts. Net interest margins are expected to show mixed trends, with mid-sized private banks and SFBs likely to see modest improvements, supported by better asset yields and lower interest reversals.
