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Why India’s Banks Are Holding Back: Decoding the Credit Slowdown
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India’s banking sector is at a crossroads. Despite the Reserve Bank of India (RBI) cutting its policy repo rate by 100 basis points in February 2025 and injecting over ₹3 trillion in liquidity, bank credit growth has slowed to a three-year low of 9.6% year-on-year (YoY), down from a robust 19.1% in 2024.
This slowdown, reported by Business Standard and echoed across financial circles, raises a pressing question:
Why are banks lending less when conditions seem ripe for growth?
Let’s unpack the reasons, explore the implications, and consider what it means for businesses, consumers, and India’s economic trajectory.
A Cautious Banking Sector
Banks are treading carefully. The memory of past bad loans still looms large, prompting stricter lending standards. Public sector banks, which have outpaced private banks in lending for the first time in a decade, are particularly cautious.
This shift, as noted by Atul Mejari, a Strategic FP&A Leader, reflects a broader trend of risk aversion. Banks are prioritizing safer bets, parking ₹1.71 lakh crore in the RBI’s Variable Rate Reverse Repo (VRRR) auctions, as JAGADHEESHRAJ RK…
