India’s financial sector is facing slower momentum, with credit growth at 10.3% YoY and deposits expanding at just 9.8%, their first dip below 10% in three months. While MSME demand and corporate borrowings from banks provided some support, weak corporate lending, reduced NBFC flows, and muted private capex weighed on expansion. CareEdge Ratings warns that deposit mobilisation will remain under pressure amid alternative savings avenues and high base effects.
Core Development
As of September 5, 2025, credit offtake stood at ₹188 lakh crore, up 10.3% YoY but down from 13.4% last year. Large corporates shifted borrowings from bond markets to banks due to higher yields, while MSMEs drove much of the momentum.
Deposits reached ₹236.7 lakh crore, growing 9.8% YoY, compared to 11.2% in the same period last year. Time deposits rose 8.8% YoY, while demand deposits surged 17.7%, reflecting liquidity preference.
Key Drivers / Issues
MSME demand and corporate shift from bond markets are propping up credit growth.
Weak flows to NBFCs and subdued private capex slowed overall lending.
Deposit growth slipped due to alternative savings options and reduced idle government balances.
Liquidity remained easy, with the Weighted Average Call Rate (WACR) at 5.36%, below the repo rate of 5.50%, after three RBI rate cuts.
Stakeholder Impact
For banks, slower deposit growth tightens funding flexibility. MSMEs benefit from increased credit flow, but corporates face constrained long-term financing. Investors see cautious sentiment, while the RBI must balance liquidity support with financial stability.
Industry & Policy Reactions
CareEdge noted that while MSMEs and corporates may continue to support credit demand, structural headwinds from weak NBFC funding and private investment persist. Analysts suggest deposit mobilisation will remain stressed as households diversify savings.
Challenges Ahead
Sustaining credit growth without deposit mobilisation.
Managing liquidity while ensuring credit-to-deposit ratios remain healthy.
Stimulating private capex to balance MSME-driven lending.
Addressing NBFC funding constraints.
Strategic Outlook
The financial sector’s growth trajectory will hinge on reviving corporate lending and strengthening deposit flows. With liquidity comfortable, the near-term challenge is ensuring sustainable mobilisation and diversifying credit sources.
Why This Matters
Slower credit and deposit growth highlight structural stress in India’s financial sector. Policymakers must address deposit mobilisation and revive private capex to ensure balanced, sustainable growth.
