Banks are optimistic about a rebound in credit growth in the second half of 2025-26, driven by the government’s GST rate cut and the Reserve Bank of India’s one percentage point reduction in the repo rate. The twin measures are expected to revive consumption and strengthen lending demand, especially in the retail segment.
Data from CareEdge Ratings show non-food credit growth slowed to 9.9 per cent in August 2025 from 13.6 per cent a year earlier. Personal loans — nearly one-third of total bank credit — grew 11.8 per cent year-on-year, down from 13.9 per cent.
This was led by loans against gold jewellery amid record prices, while housing loans moderated to 9.7 per cent from 13.1 per cent and vehicle loans to 8.7 per cent from 14.5 per cent a year ago.
Retail demand
Lenders said retail credit demand has picked up since GST rate cuts took effect in late September, though corporate credit demand remains muted.
“In the few days in September after the GST rate cut, we saw strong traction in vehicle and housing loans. I am very confident that in Q3 there could be a 1-2 per cent further growth on retail credit,” Ashok Chandra, MD and CEO, Punjab National Bank (PNB) told The Telegraph.
He added that credit demand from MSMEs and agriculture is also improving, boosting overall RAM (retail, agriculture, MSME) growth.
ICICI Bank MD and CEO Sandeep Bakshi said the bank’s retail loan book grew 6.6 per cent in Q2FY26, while overall credit growth stood at 10.3 per cent.
“There was a bit of a slowdown till the GST rates were revised and implemented from September 22. But there has been a strong momentum in the week thereafter and we expect this momentum to continue,” he said.
HDFC Bank MD and CEO Sashidhar Jagdishan said the GST and interest rate cuts have “galvanised economic activity,” providing scope to accelerate loan growth.
Federal Bank MD and CEO KVS Manian said that while retail credit will lead growth, corporates remain cautious, opting instead for equity and bond markets.
“So, over the next six months, I see a mixed bag in terms of credit growth with retail continuing to drive credit growth for banks,” he said.
Q2 profit growth
HDFC Bank’s standalone net profit rose 10.8 per cent year-on-year to ₹18,640 crore in Q2FY26 from ₹16,820 crore previous year, with net interest income (NII) up 4.8 per cent at ₹31,550 crore and non-interest income up 25 per cent at ₹14,350 crore.
Their Net interest margin (NIM) stood at 3.3 per cent versus 3.5 per cent last year and gross NPA improved to 1.2 per cent from 1.97 per cent.
ICICI Bank posted a standalone net profit of ₹12,359 crore, up 5.2 per cent from ₹11,746 crore previous year, with NII rising 7.4 per cent to ₹21,529 crore.
NIM improved to 4.3 per cent from 4.27 per cent in Q2FY25 and gross NPA fell to 1.58 per cent from 1.97 per cent.
PNB’s profit rose 14 per cent in Q2FY26 to ₹4,904 crore from ₹4,303 crore in Q2FY25, though NII dipped 0.5 per cent.
Domestic NIM fell to 2.78 per cent from 3.06 per cent, but gross NPA improved to 3.45 per cent from 4.48 per cent previous year.