Credit growth may ease after rate hike but remain strong: RBI

The Reserve Bank of India expects bank credit growth to moderate from its current pace of about 19% as Wednesday’s 25-basis-point repo rate increase feeds through to borrowing costs. It said the slowdown should still leave lending strong enough to support economic growth.

“Credit growth has been at an all-time high of 19% growth rate. I think it will continue to be strong. A few percentage points here and there should not matter too much in the overall scheme of things. It will continue to support growth,” Governor Sanjay Malhotra told reporters after the policy announcement.

The RBI raised the repo rate to 5.5%, its first increase since February 2023, to address rising inflation. Higher rates could temper demand for new loans, though the effect will take time to work through the banking system. The RBI also raised its FY27 economic growth forecast to 7.1%, citing resilient consumption and investment.

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Non-food bank credit grew 18.8% year-on-year in the fortnight ended August 31, against 10.2% a year earlier, RBI data showed. Lending to the services sector rose 24.3%, up from 10.3%, supported by credit to non-banking finance companies, trade, professional services and commercial real estate. Industrial credit grew 18.2%, compared with 7% a year earlier.


Deputy Governor S Janakiraman said any slowdown should be viewed against the longer-term trend. “If you take a long-term average of 10 years, it is seen in the range of 12–14%, which is very sustainable and very supportive of growth,” he said.

“As these rates transmit, it typically takes about a couple of quarters for transmission to materialise. Some moderation will occur relating to demand as well as rate. But moderation from 18–20% is not bad and will be adequate enough to support growth,” Janakiraman said.