MUMBAI: With credit growth remaining anemic so far this fiscal, printing in at 9.5%, steeply down from 15% in the year-ago period, in spite of the 100 bps reduction in the key repo rate since February and 75 bps in this fiscal alone, banks are now hoping to ride on the likely consumption boom spawned by the GST cuts announced this Wednesday.
It is not that corporate credit at 5.5%, down from 7.7% a year-ago, alone has not been growing. Even consumption loans have tapered off and printed in at only 14.5% on-year to touch Rs 105.6 trillion in the first quarter of the current financial. But this too is led primarily by gold loans, which surged 34.6%, followed by two-wheeler and auto loans, while home loans have also slowed to under 10%, and it's agri and small business loans that are holding up.
The latest RBI data for the fortnight ending August 8 show credit grew 10.2% while deposit grew 10.1%. In the same period last year, credit grew 13.6% and deposit 10.87%.
However, following the subdued first quarter, banks have already started rolling out attractive loan offers to boost credit growth beginning with the festive season, which now they expect to get further accentuated by the second-order effects of the GST cuts.
Banks remain hopeful that the festive season, coupled with lower inflation, softer interest rates, higher disposable income from tax reliefs in the budget, and GST cuts will boost demand and lift retail credit.
Their optimism is based on the belief that a demand boom, which looks more likely than not, will lead to increased production which in turn can lead to demand for working capital loans from the corporate side while the same can lead to increased demand for consumption loans, a public sector banker told TNIE.
In a note, Soumyakanti Ghosh, the chief economic advisor to State Bank of India, said the GST reform is growth-accretive, boosting consumption and hence demand for loans, while keeping fiscal risks in check.
The new GST structure will benefit the banking and financial sector by improving cost efficiencies. Lower indirect tax costs on inputs and services are expected to translate into operational savings for lenders, strengthening margins and competitiveness.
According to domestic brokerage Motilal Oswal, banks will benefit from the second-order flow of the GST cuts as consumption and economic activities should pick up boosted by falling prices and rising demand. Household confidence and demand for debt should also move up and credit growth should move into double digits in H2, the brokerage said. It added that there could be direct benefits for consumer-heavy lenders and credit card players.
However, rating agency Icra does not see GST cuts spawning loan demand. According to Anil Gupta, financial sector co-group head at the agency, credit growth has been weak so far in FY26, creating space for downward revision in credit growth estimates and even with the benefits from GST reforms, he sees credit growth to be within their estimate of 10.4-11.3% this fiscal or an incremental Rs 19-20.5 trillion.
“Retail loan pick-up is expected to improve in the festive season, spanning September-March 2026, in response to the GST bonanza,” Gupta said.
Ahead of the festive season, banks are also rolling out special loan offers to entice customers, especially retail customers. For instance, state-owned Bank of Baroda has cut the interest rate on car loans by 25 bps to 8.15% from 8.40%, effective immediately.
Additionally, the second largest public sector bank has also reduced the interest rate on its loan against property by 60 bps to 9.15% from 9.75%, with immediate effect.
The new rate starting at 8.15% is applicable on auto loans and is linked to the credit profile of the borrower. Further, BoB is also offering a fixed rate of interest on car loans, linked to the six-month marginal cost of funds-based lending rate starting at 8.65%.
The largest private sector lender HDFC Bank is also offering attractive rates to entice customers to maximise their savings on their shopping. Its offers include lower processing fee and foreclosure charges and easy EMIs on credit card spends.
HDFC Bank started the season with attractive offers for individuals and businesses ahead of the Onam festival in Kerala. There are also several special offers available elsewhere in the country for personal loans, credit and debit cards, savings accounts, and its mobile app Payzapp, among others.