August 3, 2025

A recent report from the State Bank of India (SBI) reveals a concerning trend for bank credit growth. As corporations seek more innovative and alternative funding sources amidst a persistently low-interest rate environment, traditional bank loans are being sidestepped. This shift has been marked by a significant decline in the share of bank credit within total resource flows, which is projected to plummet from 31.3% in FY25 to just 22% by the second quarter of FY26. Currently, overall credit growth stands at a modest 9.5% as of June 2025. In stark contrast, non-bank resource flows are surging at an impressive rate of 15.6%. This trend underscores how businesses are increasingly turning away from bank financing and exploring other avenues that are becoming more favorable given the existing interest rates. The SBI report attributes this trend to the corporate sector's historical behavior during low-interest periods. Data from previous fiscal years, notably FY21 and FY22, show that corporations tended to lean towards non-bank financing options whenever interest rates were favorable. These instances appear to be repeating in the current climate, signaling an ongoing reliance away from traditional banking structures. Particularly noteworthy is the credit growth in the Micro, Small, and Medium Enterprises (MSME) sector, which has seen considerable growth at a rate of 21.8%. However, the SBI report cautions that overall credit growth for FY26 is expected to remain muted due to the prevailing financing behavior among large corporations. Scheduled Commercial Banks (SCBs) have seen their growth slow to 9.8% as of July 11, 2025, compared to last year’s robust 14.0% growth over the same timeframe. Moreover, the year-to-date increase in bank credit between April and July has amounted to Rs 2.19 lakh crore, offering a growth of only 1.2%. This comes in stark comparison to last year’s substantial growth of Rs 3.79 lakh crore or 2.3% YTD. On the other hand, deposits saw an increase of Rs 7.45 lakh crore (3.3% YTD) this year, slightly surpassing Rs 7.01 lakh crore (3.4% YTD) growth from the previous year. Despite this, the SBI report also highlights a notable shift in the behaviors of depositors. Higher returns from term deposits are attracting more investment into these instruments, leading to a reduction in the share of savings deposits. Savings deposits have decreased to 29.1% in March 2025 from 30.8% a year ago and 33.0% two years back. Looking ahead, the report anticipates that deposit growth will maintain a steady range between 12-13%, while overall credit growth is projected to hover between 10-11% in FY26. These predictions underscore the need for banks to adapt to a changing financial landscape where non-traditional funding sources are becoming increasingly prominent. In summary, the SBI report indicates that the financial ecosystem is evolving rapidly, as corporations continue to innovate in their funding strategies, diverting away from conventional banks. It remains critical for financial institutions to reassess their approaches in a post-low-interest environment to stay competitive.

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Tags: Bank credit, Sbi report, Corporate funding, Interest rates, Msme credit,