Shift in corporate funding slows bank’s credit growth

New Delhi

Bank credit growth in India is expected to stay low, as companies continue to seek alternative funding methods during the ongoing low-interest rate phase, according to a State Bank of India (SBI) report released on Saturday.

The report highlights that when interest rates drop, corporates often avoid borrowing from banks and instead choose non-bank sources. This trend, seen during FY21 and FY22, appears to be repeating in FY25 and beyond.

According to SBI, the share of bank loans in total corporate resource flow is likely to fall sharply—from 31.3% in FY25 to just 22% by Q2 of FY26. As of June 2025, overall credit growth stands at 9.5%, while non-bank funding is growing at a faster rate of 15.6%.

One bright spot is the MSME sector, where credit growth has reached 21.8%. However, overall credit growth by Scheduled Commercial Banks slowed to 9.8% in July 2025, compared to 14% in the same period last year.

From April to July 2025, bank credit grew by ₹2.19 lakh crore (1.2% YTD), much lower than ₹3.79 lakh crore (2.3% YTD) during the same period in 2024. In contrast, deposits have risen by ₹7.45 lakh crore this year, slightly ahead of last year’s ₹7.01 lakh crore growth.

The report also noted a shift in deposit behaviour, with customers preferring term deposits due to higher returns. Savings deposit share dropped to 29.1% in March 2025, from 30.8% a year earlier.

For FY26, SBI expects deposits to grow 12–13% while credit growth is projected at just 10–11%.