IDFC FIRST Sees Credit Growth Picking Up As Cost Of Credit Falls

IDFC FIRST Bank expects its credit growth to rebound as the cost of borrowing falls, aided by the Reserve Bank of India's recent policy rate cut and liquidity-boosting measures like the phased reduction in the cash reserve ratio and open market operation purchases, the bank said in a report.

The bank's credit growth slowed to 9.9% in May from 16.1% a year ago, excluding the impact of its merger with IDFC Ltd. Growth moderation was most notable in loans to the services sector and in retail loans. "Within retail credit, growth in housing loans has held up, while there has been a surge in loans against gold jewellery due to rising gold prices," the bank said.

On June 6, the RBI's Monetary Policy Committee cut the cash reserve ratio by 100 basis points to 3% of banks' net demand and time liabilities. The cut, to be implemented in four tranches of 25 basis points each, is expected to inject around ₹2.5 trillion into the banking system.

Credit growth dipped below deposit growth for the first time in over three years, pushing the credit-to-deposit ratio down to 77% in May from 79% in March, excluding merger effects.

The bank expects deposit growth to improve in 2025-26, supported by the RBI’s liquidity measures. As of May, deposit growth stood just above 10% year-on-year, compared with 12.2% a year earlier. However, the impact of the RBI’s moves is already visible, with April-May incremental deposit growth outpacing credit offtake.

There has been a shift in deposit composition in 2024-25, with an increasing share of term deposits due to elevated interest rates during the hike cycle. The share of household deposits has declined amid lower savings and growing investor preference for equities, while corporate deposits—both financial and non-financial—now form a larger portion of total deposits.
Transmission of rate cuts is progressing, with 72% of bank loans on floating rates. Of these, 61% are linked to the external benchmark lending rate, and 36% to the marginal cost of funds-based lending rate.
System liquidity surplus is projected to rise to between ₹5 trillion and ₹6 trillion from August to December, aided by the RBI’s record dividend and the phased CRR cut, which should further support policy transmission.