Lending Spree or Growth Surge? Decoding India’s Double-Digit Credit Boom

Image Source: BFSI News

India’s banking sector continues to post double-digit credit growth, signaling robust economic momentum despite global headwinds. According to the Economic Survey 2025, overall bank credit grew by 11.8% year-on-year as of November 2024, following a peak of 15.2% the previous year. While growth has moderated slightly, experts say the trend remains sustainable and broad-based, driven by MSMEs, retail lending, and infrastructure financing.

1. What’s Fueling the Surge?

MSME Lending: Credit to micro, small, and medium enterprises rose 17.8% YoY, thanks to government-backed guarantees, UDYAM registration, and digital onboarding.
Retail Credit: Home loans, personal loans, and credit cards continue to see strong demand, especially in urban and semi-urban areas.
Public Sector Banks: PSBs now account for 56.9% of incremental credit, up from 20% in FY18, showing renewed lending confidence.

2. Is It Sustainable?

The credit-to-GDP ratio has improved, narrowing the gap from (-)10.3% in FY23 to (-)0.3% in FY25, indicating that credit growth is not overheating.
India’s ratio still trails advanced economies, suggesting ample room for expansion without triggering systemic risk.
The RBI’s Financial Inclusion Index rose from 53.9 in 2021 to 64.2 in 2024, reflecting deeper credit penetration.

3. What It Means for the Economy

Consumption Boost: Easier access to credit fuels consumer spending, especially in housing, automobiles, and durables.
Business Expansion: MSMEs and corporates are leveraging credit for capex, hiring, and digital transformation.
Financialization of Savings: Household investments in equities and credit instruments are rising, diversifying India’s financial ecosystem.

4. Risks to Watch

Pockets of stress are emerging in unsecured lending and NBFC portfolios.
Liquidity tightening and regulatory changes in the Liquidity Coverage Ratio (LCR) could slow credit momentum in FY26.
Credit quality remains stable, but close monitoring is essential as lending expands into new geographies and borrower segments.

Sources: Economic Times BFSI, SBI Research, CRIF High Mark, ThePrint