As of end-March 2026, loans priced under 9% accounted for 64.2% of total advances — up sharply from 43.9% a year earlier. Within term loans, which account for 62.8% of total bank credit, 80.2% are now priced below 10%. With lending rates declining faster than deposit rates, banks’ net interest margins are coming under pressure, which could weigh on profitability in the coming quarters.
Credit Growth Accelerates
The margin pressure comes alongside a robust acceleration in credit growth. Bank credit grew 14.1% year-on-year as of end-March 2026, up from 11.1% a year earlier — a broad-based expansion that spanned geographies, sectors and borrower categories. Double-digit credit growth was sustained across rural, semi-urban, urban and metropolitan areas, with metropolitan branches accounting for the largest share at 58.2% of total lending.
Public sector banks retained their dominance with a 52.9% share of total credit, followed by private sector banks at 39.4%. Private sector banks accelerated sharply, with credit growth rising to 12.3% from 9.5% a year earlier, while public sector banks grew faster than the headline system rate. Small finance banks continued to punch above their weight, expanding their total credit share to 1.6% from 1.0% in March 2021.
Corporate Credit Rebounds
Loans to the private corporate sector — accounting for more than a quarter of total bank credit — grew 15.5% year-on-year, accelerating from 11.9% a year ago, suggesting a revival in private capital expenditure and working capital demand. Agriculture and industrial credit also saw strong acceleration, growing 14.4% and 12.0% respectively, up from 8.1% and 9.4% a year earlier.Personal Loans Moderate
In a significant shift, personal loan growth moderated to 12.9% year-on-year — falling below overall credit growth for the first time after consistently outpacing it over the past several years. Despite the moderation, personal loans still account for 30.7% of total bank credit, reflecting the deep penetration of retail lending across the system.
Household Borrowing Dominates
The household sector remains the engine of credit growth, with borrowings rising 14.3% year-on-year to account for 58.6% of total bank credit — and approximately three-fifths of all incremental credit extended during FY2025-26. Individuals account for 47.8% of total bank credit, with female borrowers’ share edging up to 24.7% from 23.8% a year earlier — a gradual but steady improvement in financial inclusion metrics.
The NIM Challenge
The sharp shift in loan pricing toward sub-9% rates — driven by the RBI’s cumulative 125 basis point repo rate cut cycle — is the central challenge now facing bank treasuries. While falling deposit rates are providing some offset, the transmission on outstanding deposits remains slow, with the weighted average rate on outstanding term deposits declining only marginally to 6.59% in April 2026. The combination of rapidly repricing assets and sticky liabilities is likely to keep NIM recovery a key talking point as banks report their full-year and April quarter results in the weeks ahead.