Banks report robust Q3 credit growth backed by RBI policy and GST rate cuts

Indian banks posted robust credit growth in the October–December quarter, supported by RBI repo rate cuts, GST reductions and festive season demand.

Fuelled by higher demand following a 125-basis point (bps) cut in the repo rate, reductions in the goods and services tax (GST) rates and the festive season spending, several banks reported robust credit growth in the quarter ended December, show provisional quarterly business figures filed by lenders for the October-December 2025 quarter.

Banks continue to post double-digit loan growth, according to the data. During Q3FY26, most of the lenders posted a higher deposit growth, though credit expansion continued to outpace it as shown by lenders’ credit-deposit (CD) ratio that touched a record high of 81.6 per cent as of December 15, 2025, according to latest RBI data.

Overall, loan growth among public and private sector lenders who have reported their provisional numbers was between 7.42 per cent and 20 per cent.

Among public sector lenders, banks that saw strong growth in advances in Q3FY26, are the Bank of Maharashtra (19.61 per cent), Central Bank of India (19.57 per cent) and Bank of India (15.07 per cent), show provisional numbers filed by these lenders.

Bank of Baroda’s advances were up 13.54 per cent, while Punjab National Bank reported a loan growth of 10.15 per cent. Union Bank of India’s loan book expanded by 7.42 per cent.

HDFC Bank’s advances jumped 11.9 per cent to Rs 28.44 lakh crore in the third quarter of the current fiscal, compared to Rs 25.42 lakh crore in the year-ago period. Kotak Mahindra Bank’s net advances increased by 16 per cent.

“There has been a good pick up in loan growth. Note that this is the quarter where we have seen the full impact of GST cuts playing out. Our guess is growth could have been driven by auto loans, unsecured loans and overall pick up in retail credit,” said Suresh Ganapathy, MD, Head of Financial Services Research, Macquarie Capital.

Between February-December, the Reserve Bank of India (RBI) has reduced the repo rate from 6.5 per cent to 5.25 per cent.

The government implemented the next-generation goods and services tax (GST) reforms effective September 22, with a simplified two-slab structure of 5 per cent and 18 per cent. The move has helped in spurring domestic demand in the festive season. The GST cuts triggered a significant demand for auto loans during September and October — a period that coincided with the festive season.

“We expect liquidity revival to stimulate a concurrent downstream growth in credit and CASA (current account savings account), and we keep our above-consensus FY26E credit growth of 13 per cent unchanged. This view is reinforced by GST rationalisation benefits and a high balance sheet dry powder for most leading banks,” said Santanu Chakrabarti, analyst – Banking and Finance, BNP Paribas India.

Deposit growth during the quarter among banks who reported their provisional numbers stood at 3.35-15.3 per cent.

During Q3 FY26, Bank of Maharashtra deposits grew by 15.3 per cent, while Central Bank of India posted a growth of 13.2 per cent in deposits. Punjab National Bank and Union Bank of India reported a slower growth in deposits at 8.32 per cent and 3.35 per cent, respectively. Axis saw strong deposit growth (15 per cent) that outpaced its loan growth (14.1 per cent).

During the October-December quarter, banks’ CD or loan-to-deposit ratio — indicating what share of a bank’s total deposits has been extended as loans — remained high. HDFC Bank’s CD ratio stood at 99.45 per cent, while Axis Bank’s stood at 92.84 per cent.

“Credit-deposit ratio has increased for banks as they are able to deploy more resources towards credit. RBI measures such as a 100-basis point reduction in CRR, recent open market operations to buyback government bonds have freed up resources of banks and hence they are able to lend more with the same deposits,” said Anil Gupta, senior VP & co-group head of Financial Sector Ratings, ICRA Ltd.