Bank credit growth stays firm: FY26 up 16%, May 2026 data

Credit growth remains firm as May ends

India’s bank credit growth has stayed resilient, even as market participants track geopolitical uncertainty and the pace of deposit accretion. Latest Reserve Bank of India (RBI) data shows total bank credit from all scheduled banks at Rs 220.26 trillion as of May 31, 2026. The stock of credit was up 1.52% on a fortnightly basis, and the RBI data showed a year-on-year increase of around 17.40%. The broad trend through FY26 and into FY27 is that loan growth continues to run ahead of deposit growth. That gap is now a central issue for banks as it affects funding costs and the system’s liquidity.

Fortnight ended May 15: loans grew faster than deposits

In the fortnight ended May 15, RBI data showed credit growth holding up despite uncertainty. Bank credit rose 16.2% year-on-year to Rs 211.87 trillion, while deposits grew 12.2% to Rs 256.88 trillion. This left a gap of roughly 400 basis points between credit and deposit growth. The data underlined a continuing mismatch between the growth of assets (loans) and liabilities (deposits). For banks, such a mismatch matters because sustained faster loan growth typically requires either stronger deposit mobilisation or alternative funding.

FY26 snapshot: fastest expansion since FY24

On a full-year basis, bank credit growth picked up sharply in FY26 after muted growth in FY25. RBI data showed bank credit expanded 16.08% year-on-year in FY26, the fastest pace since FY24, when credit grew by over 20%. On an absolute basis, total banking credit stood at Rs 213.61 trillion, while deposits were Rs 262.30 trillion. Deposit growth in FY26 also improved, rising 13.47% year-on-year, which was cited as the highest since FY24, but it still lagged credit expansion. Some commentary around year-end figures flagged that the reported pace may be influenced by changes in RBI reporting dates, a factor that has also appeared in other recent periods.

Non-food credit: steady traction through FY26

Non-food credit remained a key driver of system-wide growth. Data points in the reporting indicate India’s non-food bank credit rose 15.9% year-on-year in FY26, with outstanding credit at around Rs 213 trillion as of March 31, 2026. An ICICI Bank report also referenced outstanding non-food credit of around Rs 213 trillion as of March 31, 2026, with growth accelerating to above 16% year-on-year. Together, these figures reinforce that the credit cycle in FY26 was not limited to a single segment, but reflected broad momentum across loan categories tracked in non-food credit.

FY27 outlook: credit still expected to outpace deposits

The growth gap is expected to persist into FY27 based on multiple projections cited in the reporting. As per The Economic Times, credit is expected to grow 12% to 14% in FY27, while deposits may rise 10% to 12%, assuming real GDP growth of around 7%. Bank of Baroda Chief Economist Madan Sabnavis was quoted giving the same 10% to 12% deposit growth and 12% to 14% credit growth range under a 7% real GDP assumption. Separately, rating agencies were cited projecting bank credit growth moderating to 13% to 14.5% in FY27, with deposit growth at 11% to 12%, pointing to the need for more aggressive deposit mobilisation.

Credit-deposit ratio hits an all-time high

One outcome of the sustained growth gap is the system-level credit-deposit ratio moving higher. The reporting noted that India’s credit-deposit ratio touched 83.04%, described as an all-time high. A higher credit-deposit ratio indicates that a larger portion of deposits is being deployed as credit, which can tighten liquidity conditions if deposit growth does not keep pace. For investors and analysts, this ratio is often tracked as a signpost of funding pressure, competition for deposits, and the potential trajectory of deposit rates.

What drove growth: retail, MSME, and sector-specific trends

Several drivers of credit demand were highlighted. One note said India’s bank credit growth is expected to be around 13% in FY27, supported by robust growth in MSME and retail. Retail loans were cited as about 33% of bank lending, with growth expected at approximately 14% in FY27. Agricultural credit growth was expected to be range-bound at 10% to 11% in FY27, with the expectation of normal monsoons. The same set of projections also included a statement that Crisil expects growth in fiscal 2027 to be upwards of 22% in the base case, while other estimates clustered in the low-to-mid teens, indicating divergence across published outlooks.

January 2026: gold loans surged, services and industry improved

Monthly trends earlier in the year showed shifts in composition. In January 2026, non-food bank credit expanded 14.4% year-on-year, up from 11.3% a year earlier. A notable swing came from loans against gold, with advances against gold up 128.8% year-on-year. Industrial credit growth improved to 12.1% year-on-year, from 7.1% a year earlier, supported by stronger offtake across sectors including mining, engineering goods, chemicals, auto components, cement, and infrastructure. Credit to services rose 15.5% year-on-year, led by trade, tourism, hotels, shipping, aviation, and NBFCs.

NBFC and trade credit: working-capital demand remains visible

RBI-linked data also pointed to renewed momentum in bank lending to NBFCs. Bank lending to NBFCs rose 17.8% year-on-year to Rs 19 trillion, accounting for 9.3% of total bank credit. Credit to trade expanded 16.1%, which was cited as a sign of sustained working-capital demand. These components matter because they can influence both the risk mix and the duration profile of bank assets. They also provide clues on where credit is being absorbed in the economy.

Key numbers at a glance

Market impact: why the credit-deposit gap matters

The headline issue for markets is that credit growth running ahead of deposits can raise competition for deposits, particularly if banks need to mobilise funds to maintain loan growth. With credit growth estimates for FY27 generally clustering around 12% to 14% and deposit growth around 10% to 12%, banks may need to adjust pricing and mobilisation strategies. A higher credit-deposit ratio of 83.04% adds to attention on liquidity conditions and funding costs. This dynamic also affects the mix of assets banks can grow comfortably without putting pressure on balance-sheet funding.

Analysis: reading the FY26 trend into FY27

FY26 data shows that the banking system sustained a broad-based credit expansion, with non-food credit around Rs 213 trillion by March 31, 2026 and total credit at Rs 213.61 trillion at FY26 close. The May 2026 levels at Rs 220.26 trillion indicate the system entered FY27 with a high base and continued momentum. But the persistence of slower deposit growth, alongside an elevated credit-deposit ratio, keeps the focus on funding and mobilisation rather than only loan demand. Divergent published forecasts, including a range of 13% to 14.5% from rating agencies and a separate upwards of 22% base-case statement attributed to Crisil, suggest that the direction is clear while the magnitude remains contested.

Conclusion

RBI data through May 2026 shows India’s bank credit growth remains firm, with credit expanding faster than deposits and the credit-deposit ratio at a reported record. FY27 will be watched for how banks bridge this gap, as most projections still place credit growth ahead of deposit growth under a 7% real GDP assumption.