SBI Report: Bank Credit growth likely to stay muted as corporates tap alternative funding in low-interest regime

The credit growth of banks in India is expected to remain subdued as corporates increasingly turn to non-bank funding sources amid the prevailing low-interest rate environment, according to a report by the State Bank of India (SBI).

The report highlights that businesses tend to reduce their reliance on bank loans during periods of lower interest rates, opting instead for alternative avenues of raising capital. An analysis of resource flows over the past eight years shows a recurring trend—similar to FY21 and FY22—where corporates avoided bank borrowing and leaned on non-bank resources.

SBI estimates the share of incremental bank credit in total resource flow will decline from 31.3 per cent in FY25 to 22 per cent by the second quarter of FY26. As of June 2025, headline credit growth stands at 9.5 per cent, whereas non-bank resource flows are growing faster at 15.6 per cent.

Credit to Micro, Small and Medium Enterprises (MSMEs) has been an outlier, posting a stronger growth rate of 21.8 per cent. However, overall bank credit growth by Scheduled Commercial Banks (SCBs) slowed to 9.8 per cent as of July 11, 2025, compared to 14 per cent in the same period last year.

Between April and July this year, bank credit rose by Rs 2.19 lakh crore (1.2 per cent year-to-date), significantly lower than the Rs 3.79 lakh crore (2.3 per cent YTD) growth recorded in the same period last year. Deposits, meanwhile, grew by Rs 7.45 lakh crore (3.3 per cent YTD), slightly above last year’s Rs 7.01 lakh crore (3.4 per cent YTD).

The report also noted a shift in deposit patterns, with higher returns on term deposits attracting more inflows. Consequently, the share of savings deposits declined to 29.1 per cent in March 2025 from 30.8 per cent a year ago and 33 per cent two years earlier.

Looking ahead, SBI projects deposit growth of 12-13 per cent and bank credit growth of 10-11 per cent in FY26.