New Delhi [India], December 1 : With the strong festive demand and the GST cuts, the loan growth in the banking system has picked up pace in October and early November, according to a latest report by IIFL Capital.
The report noted that credit demand has improved after a period of softness, with retail-led consumption emerging as the key driver of growth.
As per the report, system loan growth rose to 11.2 per cent year-on-year in October 2025, higher than 10.4 per cent in September. The momentum continued into November, the report added this suggesting that credit momentum is improving and has likely bottomed out.
It stated, "We expect credit momentum to sustain in 2H, supported by resilient consumption trends, stabilizing unsecured AQ, and a seasonally strong 2H."
Financial year-to-date (FYTD) credit growth has now reached 5.6 per cent, surpassing 5.1 per cent in the same period last year. The firm attributed the October improvement to festive-led consumption and GST cuts, which boosted spending and supported higher loan demand across key segments.
However, it said "growth will likely be capped by muted corporate demand and slower deposit accretion (10.2 per cent yoy), with system LDR at approx. 80 per cent."
On a month-on-month basis, loan growth was led by vehicle loans, NBFC lending and unsecured retail loans.
The report also said it expects credit momentum to remain steady in the second half of the fiscal year, supported by resilient consumption trends, stabilising asset quality in unsecured portfolios, and the seasonal strength usually seen in the October-to-March period.
The firm also pointed out that nominal GDP growth remains slow, and the credit multiplier is already at a healthy 1.3 times, leaving limited room for aggressive expansion.
It highlighted a gap between private and public sector banks in terms of spreads and net interest margins (NIMs). Outstanding spreads for private banks expanded by 5 basis points in October, helped by an 11 basis point decline in the outstanding weighted average term deposit rate (WATDR).
In contrast, PSU banks saw flat outstanding spreads, while their fresh spreads fell 9 basis points due to a sharper decline in fresh lending rates, partly because of delayed MCLR adjustments.
It expects CRR (Cash Reserve Ratio) cuts to support NIMs (Net Interest Margin) by 7-9 basis points, and said that ongoing time deposit re-pricing should help offset the impact of a potential 25 basis point policy rate cut.
So the report outlined that loan growth in October and November has strengthened, driven mainly by festive-season consumption and GST-led demand revival.
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