Festive Boost and GST Cuts Propel Loan Growth in Banking Sector

Loan growth in the banking system surged in October and early November, driven by festive demand and GST reductions, according to IIFL Capital. The momentum is primarily led by retail consumption, while credit growth is expected to remain steady in the latter half of the fiscal year.

The banking sector witnessed a notable uptick in loan growth in October and early November, as highlighted by a recent report from IIFL Capital. The report attributes this surge to strong festive demand and reductions in GST, elevating credit activity after a recent lull.

Recording a year-on-year growth of 11.2% in system loans for October 2025, compared to 10.4% in September, the trend endured into November. IIFL Capital foresees sustained credit momentum in the latter half of the year, bolstered by steady consumption, stabilized unsecured asset quality, and the favorable seasonal period.

Despite these gains, the report cautions that growth may be tempered by lackluster corporate demand and slower deposit growth. Even as consumption and lending increase, nominal GDP expansion remains tepid, and disparities persist between private and public banks in terms of spreads and net interest margins.

(With inputs from agencies.)