India’s banking sector is experiencing a pronounced slowdown in loan growth, marking a sharp departure from the double-digit expansion seen in recent years. According to the latest Reserve Bank of India (RBI) data, systemic credit growth fell to 8.97% year-on-year in the fortnight ended May 30, 2025, the lowest rate recorded in three years. This deceleration is reshaping the dynamics of lending, liquidity, and risk management across the country’s financial system.
The RBI has imposed stricter risk weights on unsecured loans and lending to non-banking financial companies (NBFCs), prompting banks to adopt a more cautious approach, especially in segments like personal loans and credit cards. Credit growth to industry slowed to just 4.9% in May 2025, down from 8.9% a year earlier. Agriculture and services sectors also saw significant moderation, with growth rates falling to 7.5% and 9.4% respectively, compared to over 20% in 2024.
Lending rates remained high until February 2025, discouraging fresh borrowing. Although the RBI began easing rates this year, the impact on loan demand has been gradual. Many large corporates have turned to overseas and domestic debt markets, where borrowing terms are more favorable than those offered by banks.
The RBI’s rate cuts begin to filter through the economy. Projections suggest credit growth could stabilize around 12% in the current fiscal year, with further improvement possible if liquidity conditions remain favorable and borrower confidence returns. However, much will depend on the pace of economic recovery, sectoral demand, and the effectiveness of regulatory measures.