Bank credit growth has experienced a dramatic acceleration, nearly doubling to 19.1% year-on-year in July 2026 compared to 9.9% in the same fortnight a year earlier, according to latest Reserve Bank of India data. This surge represents a significant pickup from the 19.3% year-on-year growth as of July 31 that was previously reported. The RBI's sectoral deployment data, collected from 41 select scheduled commercial banks accounting for about 95% of total non-food credit, shows broad-based acceleration across major sectors. India Ratings had earlier revised its FY27 bank credit growth estimate upward to 15% from earlier 13%, driven by expectations of higher corporate lending for working capital requirements and cash reserve ratio benefits on diaspora deposits.
The credit growth acceleration was visible across all major sectors tracked by the RBI, with services recording the fastest growth at 22.9% year-on-year in July, more than twice the 10.2% growth recorded during the corresponding fortnight of the previous year. The RBI attributed this increase in services-sector credit to segments including non-banking financial companies (NBFCs), trade and commercial real estate. Industry sector also showed strong performance with faster credit growth than a year ago, with credit to industry recording a robust 20% year-on-year growth compared to 6.5% in the corresponding fortnight of last year. Agriculture and allied activities registered a strong 17% growth vis-a-vis 7.3% in the corresponding fortnight of the previous year. Among major industries, credit to infrastructure, basic metal and metal products, all engineering, chemical and chemical products, petroleum, coal products and nuclear fuels, and textiles marked buoyant year-on-year growth, while credit to micro and small industries exhibited steady growth.
Gold loans expanded 88.1% year-on-year to ₹5.52 lakh crore according to RBI data up to July 31, though this represents a significant deceleration from the 136.4% growth rate seen a year back. The RBI implemented a uniform gold loan framework effective April 1, 2026, which restricted the tenure for consumption-focused bullet repayment loans to a maximum of 12 months. The regulator also replaced the uniform 75% loan-to-value (LTV) ratio rule with a tiered system based on loan size: up to 85% LTV for loans under ₹2.5 lakh, 80% LTV for ₹2.5 lakh to ₹5 lakh, and 75% LTV for amounts above ₹5 lakh. Despite regulatory adjustments, gold loans continued to grow at the fastest rate even as the pace slowed as lenders took time to adjust to the new framework.
The credit-to-personal-loans segment recorded a growth of 16.2% compared with 11.9% a year ago, according to the latest RBI data. Housing loans including priority sector loans rose 11.3% year-on-year to ₹34.3 lakh crore while vehicle loans grew 18.8% to ₹7.65 lakh crore at the end of July, compared with 9.6% and 8.9% respectively a year back. While segments such as housing and vehicle loans sustained double-digit growth, credit card outstanding and loans against gold jewellery decelerated. NBFCs are likely to focus more on maintaining collection momentum and asset quality rather than portfolio growth amid multiple domestic and global headwinds, including an uneven and deficient monsoon, slower economic growth, volatile global environment and rising inflation. The sector is expected to face margin pressure in FY27 due to volatile and elevated rates, with limited room to increase lending rates.
Despite higher credit growth, banks will face profitability challenges due to new provisioning requirements under the Expected Credit Loss (ECL) framework, as reported by The Economic Times. Credit costs for banks are likely to rise to 0.74% in FY27 from 0.65% in the previous fiscal due to additional provisioning requirements. Ankit Jain, associate director at India Ratings, explained that the transition to ECL norms will weigh on the banking sector through a one-time impact on the balance sheet and higher steady-state credit costs, driven by increased Stage 1 and Stage 2 provisioning requirements. Credit costs for the banking sector had declined to 0.65% in FY26 from 4.19% in FY18, supported by a benign credit environment, corporate deleveraging in the post-COVID period, strong provisioning on legacy NPAs and improving risk management practices. India Ratings estimates credit costs at 95 basis points for private banks and 60 basis points for public sector banks in FY27, compared with 88 bps and 49 bps, respectively, in FY26.
Deposit growth has consistently lagged credit growth by an average of 3.80% since FY22, pushing the loan-deposit ratio (LDR) to 84.8% in the first quarter of FY27 from 71.7% in FY22, according to The Economic Times. However, RBI measures on FCNR(B) deposits are expected to attract additional deposits and help moderate LDRs, although only temporarily. India Ratings now expects deposit growth of nearly 13.6% year-on-year in FY27, compared with its earlier estimate of 11.4%. The competitive landscape shows private banks narrowing their loan-growth gap with public sector banks to around one percentage point during the quarter and continuing to gain loan market share. On the deposit side, PVBs widened their deposit-growth advantage over PSBs to around four percentage points, translating into continued market share gains for private banks on both sides of the balance sheet. Karan Gupta, Head and Director Financial Institutions at India Ratings, noted that high LDR at about 85% along with moderated profitability, resulting in muted net interest margins, are near-term concerns.
