Bank Credit Growth Surges to Two-Year High of 18.6% Amid Soaring Debt Market Costs

The latest data from the Reserve Bank of India reveals a notable expansion in bank credit, which increased by 18.6% year-on-year for the fortnight ending June 30, marking the fastest growth in two years. This surge follows a growth rate of 17.7% observed in the prior fortnight, indicating robust demand from both consumer and corporate sectors despite external geopolitical challenges. The total outstanding bank credit reached ₹219.3 lakh crore, while outstanding deposits stood at ₹265.4 lakh crore, reflecting a significant 570 basis points separation between credit and deposit growth, an increase from 530 basis points in the previous period.

The sustained increase in credit demand is attributed to a shift in corporate financing preferences, with firms opting for bank loans over debt market instruments, prompted by rising bond yields. Concurrently, deposit growth was recorded at 13.3%, spurred by higher inflows of non-resident deposits, marking the highest growth rate for the fiscal year. This upward trend in deposits can be linked to favorable RBI measures that are designed to enhance the mobilization of funds, particularly through Foreign Currency Non-Resident Bank (FCNR-B) deposits.

Looking forward, credit growth is anticipated to remain robust for the financial year 2027, buoyed by supportive liquidity conditions and consistent government capital expenditure. However, experts predict a gradual normalization of growth from the recently elevated levels. The financial year to date reflects a modest increase of 2.7% in credit and 1.2% in deposits, suggesting a developing economic landscape where credit activity is beginning to outpace deposit inflows. This dynamic will be crucial for investors to monitor as shifts in financing sources could influence overall market stability and growth prospects.

Source: The Economic Times

(Expert Note: This report was prepared by the Wealthova team.)