India’s credit engine cools down as banks signal a cautious start to FY26

India’s banking system is showing early signs of a slowdown in credit growth, with the year-on-year (YoY) rise in bank credit for April 4, 2025, standing at ₹18.2 lakh crore — sharply lower than the ₹27.3 lakh crore increase recorded a year ago. This drop points to a possible shift in economic momentum as the country enters the new financial year.

As per the latest data from the Reserve Bank of India (RBI), total outstanding bank credit as of April 4, 2025, stood at ₹184.05 lakh crore. This reflects an increase of ₹1.61 lakh crore in just the last fortnight and matches the growth seen in the financial year so far, since FY26 has just begun.

But what draws attention is the significant slowdown in annual growth. In April 2024, banks had recorded a steep year-on-year rise of ₹27.3 lakh crore in total lending. Fast forward to April 2025, and the same measure has come down to ₹18.2 lakh crore — a drop of nearly 33%.

Bank credit refers to the total amount of money that banks lend to businesses, individuals, and the government. It is a key indicator of economic activity. When bank credit increases, it often signals that more loans are being given, which may indicate business expansion, increased consumer spending, or higher investments.

This cooling off in credit growth could stem from multiple factors. Experts believe that one of the reasons could be interest rates, which have remained elevated, making loans costlier for both consumers and businesses. At the same time, the previous year saw a burst of post-pandemic demand, restocking, and expansion across sectors, which may not be repeating at the same pace now.

However, one must understand that a lower credit growth number doesn’t necessarily mean weakness; rather, it suggests that businesses might be borrowing more cautiously and banks may be more selective in their lending. It could also reflect that some sectors have matured after last year’s boom and are now stabilising.

As the financial year unfolds, how bank credit shapes up will be watched closely as a key signal of India’s broader economic direction.