Indian Banks See Strong Loan Growth Revival in December Quarter

Loan growth at Indian banks picked up pace in the December quarter, indicating a clear revival in credit demand across the economy. Major lenders such as HDFC Bank, Kotak Mahindra Bank, and Bank of Baroda reported improved loan expansion, reflecting stronger consumer and business borrowing in recent months.

After slowing sharply in mid-2025 due to tighter regulatory measures, overall credit growth has rebounded steadily. Analysts attribute this recovery to higher festive-season spending, government-led consumption tax cuts, and improving economic sentiment in the world’s fastest-growing major economy.

According to central bank data, bank credit growth slowed to 9.9% year-on-year in the quarter ended June, down from 11.1% in March. However, momentum returned quickly, with credit growth rising to 11.5% in November. Brokerage firm Emkay noted that systemic credit growth has improved to around 11.4% year-on-year, recovering from a low of nearly 9% in May 2025.

Retail lending continues to play a crucial role in this revival. Secured products such as gold loans and vehicle financing are emerging as key growth drivers, offering banks relatively safer lending opportunities while meeting strong consumer demand.

Market performance has mirrored this optimism. Since October, the Nifty Bank index has gained over 10%, outperforming the broader Nifty 50, which rose around 7% during the same period. Although banking stocks saw some profit-taking recently, the overall trend remains positive.

Among individual banks, HDFC Bank reported an 11.9% increase in gross loans during the December quarter, significantly higher than the growth seen in the previous two quarters. Following its merger with parent HDFC in July 2023, the bank has faced pressure to balance loan growth with deposit mobilisation, making this acceleration particularly notable.

Kotak Mahindra Bank posted a 16% rise in net advances for the quarter ended December 31, marking its fastest loan growth in the current financial year. State-run Bank of Baroda also showed steady improvement, with global advances rising 14.6% by December-end, up from earlier quarters.

Smaller banks delivered even stronger performance. CSB Bank recorded a 29% jump in gross advances, while AU Small Finance Bank reported loan growth of 24%, highlighting robust demand across different banking segments.

Several large lenders, including ICICI Bank, Axis Bank, and State Bank of India, are yet to announce their quarterly numbers, which could further influence overall sector trends.

However, analysts are also flagging a key concern. The gap between loan growth and deposit growth is widening again, pushing the system-wide loan-to-deposit ratio to a record high of around 81.6%. According to Macquarie Research, this imbalance could limit banks’ ability to reduce deposit rates, potentially impacting margins and future lending strategies.

Overall, the December quarter data suggests that India’s banking sector is regaining momentum, supported by improving demand conditions. While funding pressures remain a watch point, the current trend points to a healthier credit cycle ahead.