Indian banks record 9.5% year-on-year credit growth in Q1 FY26 (June quarter); deposits up 10.1%. Analysts project a pickup later in the year.

Deep Analysis: A 9.5% credit growth in the first quarter of the fiscal year, while appearing modest, is often a typical pattern. The June quarter traditionally experiences a slowdown in credit demand after the fiscal year-end surge, influenced by factors like the summer sowing and monsoon seasons.

Factors influencing current and future growth:

• RBI Rate Cuts: The cumulative 100 basis points (bps) repo rate cuts by the RBI in calendar year 2025 are a significant tailwind. Lower borrowing costs are expected to stimulate demand for loans, especially in the housing sector.
  
• Asset Quality Improvement: Anticipated improvements in asset quality, particularly for retail loans, will give banks more confidence to lend.
• Lagged Transmission: The full impact of repo rate cuts on lending and consumption often takes a few quarters to transmit through the system. ICICI Bank's observation of a three-quarter lag for credit channel transmission on aggregate demand highlights this.
• Expected FY26 Loan Growth: IDBI Capital Markets & Securities projects FY26 loan growth at 12-13%, driven by housing and improving asset quality in other retail segments.

Outlook: While the Q1 numbers are subdued, the underlying conditions, including favorable monetary policy and a focus on retail and affordable housing, suggest a healthy pickup in credit growth in the latter half of FY26.