Corporate Shift To Cheaper Funding May Slow Bank Credit Growth: SBI Report

The share of incremental bank credit in total resource flow is expected to fall from 31.3 per cent in FY25 to just 22 per cent by the second quarter of FY26

In the same period last year, credit had grown by Rs 3.79 lakh crore or 2.3 per cent YTD

Source : Freepik

Credit growth of banks in the country is likely to remain low as corporates continue to opt for alternative methods of funding in the current low-interest rate environment, according to a report by the State Bank of India (SBI).

The report noted that corporates tend to avoid bank loans when interest rates are low and instead explore other sources of funding.

It stated, "Bank credit to remain low as corporates are using other avenues of funding in low-interest rate regime"

The report has analysed data on resource flows over the past eight years and observed that during periods like FY21 and FY22, when interest rates were low, companies typically relied on non-bank sources for raising funds. The same pattern appears to be repeating now.

The share of incremental bank credit in total resource flow is expected to fall from 31.3 per cent in FY25 to just 22 per cent by the second quarter of FY26.

Currently, the headline credit growth is at 9.5 per cent as of June 2025, while non-bank resource flows are growing at a much faster pace of 15.6 per cent.

Credit to the Micro, Small and Medium Enterprises (MSME) sector stands out with a higher growth rate of 21.8 per cent.

The report expects it to remain muted in FY26. It mentioned that the credit growth by Scheduled Commercial Banks (SCBs) slowed to 9.8 per cent as of July 11, 2025, compared to a robust 14.0 per cent growth in the same period last year.

Between April and July this year, bank credit increased by Rs 2.19 lakh crore, showing a year-to-date (YTD) growth of 1.2 per cent.

In the same period last year, credit had grown by Rs 3.79 lakh crore or 2.3 per cent YTD.

Meanwhile, deposits grew by Rs 7.45 lakh crore (3.3 per cent YTD) in the current year, slightly higher than the Rs 7.01 lakh crore (3.4 per cent YTD) growth seen last year.

The report also pointed out a shift in deposit patterns. Higher returns on term deposits have led to greater inflows in these instruments.

As a result, the share of savings deposits fell to 29.1 per cent in March 2025 from 30.8 per cent a year ago and 33.0 per cent two years ago.

Going forward, the report projects that deposits will grow in the range of 12-13 per cent, while credit growth is expected to be between 10-11 per cent in FY26.

(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)

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