Bank Loans and Deposits Contract in Early October After Festive Season Surge

The Reserve Bank of India's latest data indicates a notable shift in banking trends, with bank loans contracting by ₹49,468 crore in the fortnight ending October 17, 2025. This marks the first contraction since the fortnight ending July 11, 2025, reversing the strong disbursement trend observed until the end of September. Despite this fortnight's contraction, year-on-year bank loan growth saw a marginal increase to 11.5% from 11.4% a fortnight prior.

Deposits also experienced a contraction, shrinking by ₹2.15 trillion, with their year-on-year growth slowing to 9.5% from 9.9%. This comes after a period where bank loans had grown by over ₹6 trillion in the preceding three fortnights, fueled by strong festive season demand, lower lending rates offered by banks, and the Goods and Services Tax rate rationalization effective September 22. The Reserve Bank of India had previously reduced its policy repo rate by 100 basis points to 5.5% since February to stimulate loan demand. Data for September showed credit to industry growing by 7.3% year-on-year, with 'Micro and Small' and 'Medium' industries seeing double-digit growth. Retail loans grew 11.7% year-on-year, though this was a moderation from 13.4% a year ago, primarily due to slower growth in vehicle loans, credit card outstanding, and other retail segments.

Bankers typically adjust their balance sheets at the end of each quarter to meet business targets. According to a treasury head of a private bank, this period usually sees substantial growth in deposits and advances, which then tapers off post-quarter-end. Anil Gupta from ICRA noted that corporates might have built up inventory ahead of the festive season, and as sales progressed, their funding needs reduced. Bankers further clarified that the recent numbers primarily reflect balance sheet adjustments for the corporate segment and large-ticket loans, rather than a slowdown in retail credit, which continues to show momentum.

Impact: This news indicates a potential slowdown in credit off-take, which is a key barometer of economic activity. While the contraction is attributed to seasonal balance sheet adjustments rather than a fundamental demand issue, it could signal a moderation in corporate investment. However, the continued strength in retail loans suggests consumer spending remains resilient. Overall, it provides insights into the liquidity and credit conditions in the economy, which can influence market sentiment and investment decisions. Rating: 7/10.

Difficult Terms: * Disbursement: The act of paying out money or making it available. In this context, it refers to the total amount of loans issued by banks. * Fortnight: A period of two weeks. * Year on year basis: A comparison of data from a specific period with the data from the same period in the previous year. * Policy repo rate: The rate at which the Reserve Bank of India lends money to commercial banks for a short period. Changes in this rate influence lending and borrowing rates across the economy. * GST (Goods and Services Tax): A consumption tax imposed on the supply of goods and services in India. Rationalization refers to adjustments or simplifications made to the tax rates or structure. * Monetary Policy Committee: A committee of the Reserve Bank of India that is responsible for setting the benchmark interest rate (repo rate) to control inflation and stimulate economic growth. * Credit Growth: The increase in the total amount of loans provided by banks to individuals and businesses. * Balance sheet adjustments: Changes made to a company's or bank's financial statements, often for reporting purposes or to manage financial ratios.