Non-food bank credit grew by 19.1% year-on-year for the fortnight ending September 30, 2026. That marks thirteen straight months of double-digit growth in bank credit. Since April 2026, credit has been growing at over 16% year-on-year.  

Is bank credit growth high?

Yes, it is.

Is it worryingly high?

That depends on how it is assessed.

The most obvious way is to compare credit growth with past trends. Growth in bank credit averaged 16.9% over the past three decades. It was above 10% in all but two stretches- the Pandemic years (2019-20 to 2021-22) and the post-taper tantrum years when banks were cleaning up their balance sheets (2014-15 to 2016-17).

Growth in bank credit is cyclical, and since 2000, there have been four distinct credit upcycles: from April 2004 to June 2007, April 2010 to October 2013, November 2017 to August 2019, and April 2022 to May 2024 (RBI Financial Stability Report).

Of these, the first two cycles saw peak credit growth of 36% and 24%, respectively; far higher than the current 19% growth level.

Comparatively, therefore, the present cycle does not appear to be unusually bullish.

Credit growth can also be compared with growth in nominal GDP. 

The rationale is that since credit is extended to finance economic activity, bank credit growth should be aligned with nominal GDP growth. In recent days, discussion on social media has pointed to the large gap between 19% credit growth and 10% growth in nominal GDP, and some have called for measures to dampen credit growth.   To unpack this further, it is useful to step back and take a longer-term view of the relationship between the two.

Over a 30-year stretch, annual growth in credit and nominal GDP moved in the same direction. However, credit growth tends to run ahead of GDP growth when bank credit is booming (for example: 2004-07 and 2022-24); the gap narrows when demand for credit moderates (2009-10). That is normal when credit demand is investment-led, because demand for funding would be the highest at the start of a growth cycle, and taper off once initial capital needs are met.

However, excessive credit growth can be a cause for concern if bank funds are increasingly directed into non-productive assets or risky investments.

Indeed, the Bank of International Settlements regards substantial deviations of the credit-to-GDP ratio from its long-term trend as an early warning signal of rising loan defaults. In such situations, it recommends that banks build up counter-cyclical capital buffers to protect against the risk of deteriorating asset quality.  

India is not in an investment boom, at least not yet.

In this cycle, industrial credit has been mainly driven by lending to small and medium companies; credit to large companies has picked up significantly only in the last quarter.

At the same time, non-performing assets in the banking sector are at decadal lows, and loan slippages are moderate. The current credit upswing is dominated by retail lending.  

Retail loans are the largest category of outstanding credit, accounting for 32-33% of the loan book, and about 30% of the incremental growth in bank credit. A closer examination of the composition of retail loans raises some concerns. During April-September 2026, a quarter of the growth in retail lending came from loans against gold, and another 21% from unsecured personal loans. 

The most investment-led component of retail borrowing–housing loans–accounted for 34% of the fresh growth in retail loans in this period, down from 42% in the same period last year.  Clearly, a rising share of retail borrowing is being used to fund consumption and other expenses that do not generate productive assets. And that is the crux of the problem.

The problem is not high credit growth, but the decomposition of that growth.

A 19% growth in credit highlights the need to address the deeper underlying concern, namely, the rapid rise in retail loans. Households borrow not only to meet economic needs but also to fulfil their aspirations. Indeed, a 2025 study of lower-middle-class borrowers showed that the single largest reason for borrowing was to purchase a smartphone or home appliance (How India Borrows 2025).  

The RBI cannot and does not prevent households from borrowing. Whether an individual takes a personal loan to fund a holiday or pledges jewellery to start a side-gig is a personal financial decision. The role of the RBI is limited to safeguarding banks against emerging risks through macro-prudential measures.

Fortunately, it has been very proactive and prompt in altering regulatory norms in specific loan segments as required.

For example, norms for gold loans were modified effective April 1, 2026; the new norms provide transparent valuation standards, LTV monitoring throughout the loan tenure, simplified loan process for small loans, and restrictions on loan usage for speculative activities.

As a result, growth in gold loans has moderated from a whopping 126% year on year in September 2025 to 83% year on year in September 2026.

RBI has also proposed that NBFCs be restricted to term loans and banned from revolving credit; the main purpose is to prevent evergreening of loans. Given that credit to NBFCs accounts for about a tenth of outstanding bank credit, the proposed measure could contain the build-up of risk in this sector.

The challenge is to ensure household access to credit while preventing banks from making risky loans. To this end, the RBI has fine-tuned its liquidity operations to mop up excess liquidity, thereby reducing the availability of loanable funds. 

The calibrated tightening stance announced in October, along with a 25-bps rate hike, is expected to slow credit offtake in general, and rate-sensitive consumption loans in particular. 

Ultimately, the quality and composition of bank credit are more important than the headline growth number.