India’s bank credit shrank in the first fortnight of October — marking the first contraction since mid-July — after a steady rise in disbursements through September, according to the latest Reserve Bank of India (RBI) data.
For the fortnight ended October 17, bank loans declined by ₹49,468 crore. Despite this, the year-on-year (Y-o-Y) growth in credit edged up slightly to 11.5%, compared to 11.4% in the previous fortnight.
Deposits, too, witnessed a sharp pullback, contracting by ₹2.15 trillion. Deposit growth on a Y-o-Y basis slowed to 9.5%, down from 9.9% a fortnight earlier.
The contraction comes after three consecutive fortnights of strong lending activity, during which bank loans expanded by over ₹6 trillion, supported by festive-season demand and lower lending rates following the RBI’s policy rate cut.
Reasons and Implications
Analysts suggest that banks may be pausing after a burst of loan disbursements in September, while a slower pace of deposit growth could be limiting their ability to lend further. The moderation also reflects balance-sheet adjustments and liquidity management by banks ahead of the festive season’s peak.
The slowdown in deposits raises concerns about funding availability, especially as the credit-deposit gap widens. Some market watchers believe the RBI may consider another repo rate cut during its upcoming Monetary Policy Committee (MPC) meeting in early December to support credit growth.
Broader Trend
While personal and services-sector loans remain relatively strong, credit to industries has shown signs of moderation. Economists note that sustained deposit mobilisation will be crucial to maintain lending momentum in the months ahead.
