“Banks See Strong Q3 Credit Growth Fueled by RBI Policies and GST Rate Cuts”

Banks Report Strong Q3 Credit Growth on Policy and Seasonal Boosts

Banks in India reported robust credit growth in the October–December 2025 quarter (Q3FY26), driven by a combination of policy measures, tax reforms, and seasonal demand. Provisional business figures filed by lenders indicate that the 125-basis point (bps) reduction in the Reserve Bank of India’s (RBI) repo rate, combined with reductions in goods and services tax (GST) rates and festive season spending, contributed significantly to higher loan growth across both public and private sector banks.

Data shows that banks continued to post double-digit growth in advances. Most lenders also experienced higher deposit growth during Q3FY26, although credit expansion outpaced deposits, resulting in a record high credit-deposit (CD) ratio of 81.6% as of December 15, 2025, according to RBI data. Overall, provisional figures indicate that loan growth among public and private sector lenders ranged between 7.42% and 20% for the quarter.

Among public sector banks, Bank of Maharashtra led the pack with a 19.61% growth in advances, followed closely by Central Bank of India at 19.57% and Bank of India at 15.07%. Other public sector banks also saw strong growth: Bank of Baroda reported a 13.54% increase, Punjab National Bank grew 10.15%, and Union Bank of India expanded by 7.42%. These numbers demonstrate a continued momentum in lending despite broader economic challenges.

Private sector banks also posted notable growth. HDFC Bank’s advances jumped 11.9% to ₹28.44 lakh crore in Q3FY26, up from ₹25.42 lakh crore in the same period a year ago. Kotak Mahindra Bank reported a 16% increase in net advances. Analysts attributed part of this growth to the festive season, which typically drives consumer and retail demand, as well as the positive impact of GST rate cuts.

Experts also pointed out the influence of specific sectors on loan growth. Suresh Ganapathy, MD and Head of Financial Services Research at Macquarie Capital, noted that the rise in lending was supported by auto loans, unsecured loans, and retail credit, emphasizing that the quarter reflected the full effects of GST reductions. These tax reforms, implemented on September 22, 2025, introduced a simplified two-slab GST structure of 5% and 18%, which helped boost domestic consumption, particularly during the festive season. Auto loans, in particular, saw strong demand in September and October, coinciding with festival-related purchases.

The RBI’s repo rate cuts—from 6.5% in February 2025 to 5.25% by December 2025—also played a crucial role in stimulating credit growth. Lower borrowing costs encouraged both consumers and businesses to take loans, supporting higher lending volumes across sectors. The combination of accommodative monetary policy, GST reforms, and seasonal consumption contributed to strong quarterly performance in the banking sector.

In conclusion, Q3FY26 witnessed robust credit growth for Indian banks, underpinned by policy support, tax incentives, and festive spending. Public and private sector banks alike benefited from a conducive lending environment, with CD ratios reaching record highs and loan growth surpassing deposit growth. The growth momentum was driven by consumer demand, retail credit, auto loans, and unsecured lending, reflecting broader economic recovery and increased financial activity. With continued supportive measures from the RBI and the government, the banking sector is poised to maintain strong credit expansion in the coming quarters.