Credit on Pause: India’s Loan Appetite Slows as Deposits Surge Ahead

India's banking industry is experiencing a peculiar flip-flop—deposit expansion has surpassed credit demand, which is creating concerns about investment desire and economic pace. Loan expansion fell to 9.4 percent as of June 27, its lowest level since March 2022, whereas deposits increased to 10 percent, indicating liquidity excess but muted borrowing.

Key points:

Deposits growth touched a high of 14.04 percent in December 2023 driven by special schemes and higher fixed deposit rates

Despite a 100 basis point cut in the policy rate and calibrated CRR cuts, credit demand remains weak

25 basis points of rate transmission has been witnessed on lending, while the fixed deposit rates have declined 30–70 basis points since February 2025

The slowdown is caused by negative sentiment in investments and banks' risk aversion

Structural problems and policy outlook:

Economists opine that India must liberalize tariff regimes and boost exports to restore credit appetite

Lower tariffs on inputs, increased trade agreements, and FDI access are seen to be of highest significance

State business reforms can unlock the mid-tech manufacturing potential and stimulate loan demand

The RBI is monitoring the credit-deposit gap to avoid long-term liquidity mismatches

Looking ahead:

Credit recovery is dependent on international demand, incentive through production, and a stronger fiscal stimulus

Banks can re-tune lending strategies, especially for infrastructure and MSME segments, to align with evolving macro signals

Sources: Economic Times, Business Standard, Livemint, Rediff Money, ET BFSI, JustDial News, HSBC India