Tax cut may bolster credit growth in H2

Banks hope lower inflation, softer interest rates, and higher disposable income will increase demand

- SUBRATA PANDA & ABHIJIT LELE

After a subdued first quarter of 2025-26 (Q1FY26), banks are now betting big on the festive season, rolling out attractive loan offers to boost credit growth in the second half of the current financial year (H2FY26)—a trend likely to be further accentuated by the second-order effects of the goods and services tax (GST) cuts.

In Q1, bank credit growth was muted as both retail and corporate loan segments slowed. However, banks remain hopeful that the festive season, coupled with lower inflation, softer interest rates, higher disposable income from tax reliefs in the Union Budget, and GST cuts will boost demand and lift retail credit.

According to a Motilal Oswal report, the banking sector will benefit from the GST cut second-order flow through as consumption and economic activities should pick up. Household confidence and demand for debt should also move up and credit growth should move into double digits in H2FY26. There could be direct benefits for consumer-heavy lenders and credit card players, the report said.