Indian banks have significantly increased their offering of lower-interest loans following aggressive rate cuts. According to Reserve Bank of India data, loans priced under 9% accounted for 64.2% of total advances at the end of March 2026, up from 43.9% a year ago. Within term loans, which represent 62.8% of total bank credit, 80.2% are now priced below 10%. The RBI noted that in response to the cumulative 125 basis point repo rate cut cycle from 6.50% to 5.25%, banks adjusted both repo-linked external benchmark-based lending rates (EBLRs) and marginal cost of funds-based lending rates (MCLR) downward during February 2025 to March 2026. The pass-through to weighted average lending rates has been robust during the ongoing easing cycle, with transmission to lending rates on fresh and outstanding loans being broad-based across sectors.
Bank credit demonstrated strong growth momentum, rising 14.1% year-on-year as of end-March 2026, up from 11.1% a year ago. As reported by The Hindu BusinessLine, metropolitan branches accounted for the largest share at 58.2% of total lending, with double-digit credit growth sustained across rural, semi-urban, urban and metropolitan areas. Private sector banks witnessed an increase in credit growth to 12.3% from 9.5% a year earlier, while public sector banks recorded higher credit growth than the system rate. Public sector banks retained their dominance with a 52.9% share of total credit, followed by private sector banks at 39.4%, while small finance banks continued to expand their presence, increasing their total credit share to 1.6% from 1.0% in March 2021.
Loans to the private corporate sector, accounting for more than a quarter of total bank credit, grew by 15.5% year-on-year, up from 11.9% a year ago, suggesting a revival in private capital expenditure and working capital demand. Agriculture and industrial credit also showed strong acceleration, growing by 14.4% and 12.0% respectively, compared to 8.1% and 9.4% in the previous year. In a significant shift, personal loan growth moderated to 12.9% year-on-year — falling below overall credit growth for the first time after consistently outpacing it over the past several years. Despite the moderation, personal loans still account for 30.7% of total bank credit, reflecting the deep penetration of retail lending across the system. The household sector remains the engine of credit growth, with borrowings rising by 14.3% year-on-year to account for 58.6% of total bank credit and approximately three-fifths of all incremental credit extended during FY2025-26.
Despite strong credit growth, banks' profitability faces pressure as lending rates decline faster than deposit rates. The transmission of repo rate cuts to External Benchmark-based Lending Rate (EBLR)-linked new floating rate personal or retail loans has been one-to-one, while the transmission of repo rate cuts to loans linked to the Marginal Cost of Funds-based Lending Rate (MCLR) has been gradual, with the weighted average lending rate on fresh and outstanding rupee loans declining 93 bps and 88 bps respectively. The margin pressure comes alongside robust credit growth, with the sharp shift in loan pricing toward sub-9% rates creating challenges for bank treasuries. While falling deposit rates are providing some offset, the transmission on outstanding deposits remains slow, with the weighted average rate on outstanding term deposits declining only marginally to 6.59% in April 2026. The combination of rapidly repricing assets and sticky liabilities is likely to keep NIM recovery a key talking point as banks report their full-year and April quarter results in the weeks ahead.
