Bank credit surges 19.4% in September amid rate hike concerns

India's banking sector posted robust credit growth in September, with advances reaching ₹230 trillion, representing an expansion of 19.38% year-on-year. The expansion underscores continued strong loan demand across the economy, even as the central bank has maintained its hawkish stance on interest rates to combat inflationary pressures.

Deposit mobilization, however, grew at a comparatively slower pace of 17.83%, reaching ₹283.95 trillion. The widening gap between credit and deposit growth rates has implications for banking system liquidity and may prompt lenders to seek alternative sources of funding.

CareEdge, a credit rating agency, has projected that elevated borrowing costs resulting from recent rate increases could temper credit expansion in the latter half of the fiscal year. Higher lending rates are expected to dampen demand for loans across segments, particularly in consumer credit and real estate financing, traditionally sensitive to rate movements.

The Reserve Bank's series of rate hikes since May have raised the repo rate to combat persistent inflation, a move intended to anchor price expectations. While tighter monetary policy aims to stabilize inflation, analysts caution it may weigh on economic growth momentum as credit becomes more expensive for businesses and consumers alike.