Bank credit grows 19.4% to Rs 230 lakh crore by September end; rate hike to slow it

Lending by India's banks grew 19.4% from a year earlier to about Rs 230 lakh crore (230 trillion rupees) in the fortnight ended 30 September 2026, according to Reserve Bank of India (RBI) data released in mid-October. Deposits rose about 17.8% to roughly Rs 284 lakh crore. Both figures were lifted by foreign-currency deposits that banks raised from non-resident Indians under a concessional currency swap facility the RBI offered between June and August. In the last fortnight of September alone, credit grew a little over 3% and deposits about 2.8%, reflecting the usual quarter-end rise in lending. Economists expect growth to slow in the second half of the financial year after the RBI raised its repo rate by 25 basis points to 5.50% on 7 October.

Bank lending is one of the clearest signs of how much activity there is in the economy. When companies borrow to expand and households borrow to buy homes, vehicles and goods, credit grows. Growth of more than 19% is strong by any recent standard, and it shows demand for loans across the economy remained high through the July to September quarter.

But the headline number needs care. A large part of the jump came from a special source: dollar deposits from non-resident Indians that banks raised when the RBI offered a cheaper way to hedge the currency risk. Banks then lent much of this money, often through their overseas branches. That inflates both deposit and loan growth without telling us as much about borrowing by ordinary Indian businesses and families. Results from large banks such as ICICI Bank show the same pattern: loan growth falls noticeably when these foreign-currency loans are stripped out.

The interest rate increase on 7 October changes the outlook. Higher policy rates usually feed through to higher loan rates over the following months, which tends to slow borrowing, especially for home loans and business expansion. Economists expect credit growth to cool in the October to March half as a result.

For households, the practical effect is that loan rates may drift up, while deposit rates may stay attractive as banks compete for funds. For businesses, borrowing could become costlier just as the festive season brings a seasonal rise in demand.

Short-term: Strong deposit inflows give banks room to lend through the festive season, but the October rate hike may start to push loan rates up.

Long-term: Once the effect of the special foreign-currency deposits fades and higher rates feed through, credit growth is likely to slow from current levels, and analysts will watch whether it stays healthy.

Who is affected: Borrowers, including home buyers and small businesses; depositors, who may see better rates; banks, which must balance growth with funding costs; and policymakers tracking the economy.

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