GST Cuts to Lift Credit Growth; System Lending to Rise

GST cuts expected to lift credit growth; system lending seen rising through FY27

New Delhi: Cuts in goods and services tax rates are expected to provide a fresh boost to credit growth in India, with system-wide lending projected to expand by 12 per cent in FY26 and accelerate further to 13 per cent in FY27, according to a recent outlook by a domestic brokerage.

The report notes that lower indirect taxes improve cash flows for businesses and consumers, encouraging higher borrowing for both investment and consumption. This, combined with stable asset quality and adequate capital buffers in the banking system, is expected to support sustained credit expansion over the next two financial years.

Consumption and investment demand to drive lending

Analysts said GST rationalisation helps reduce input costs and working capital pressures, particularly for small and mid-sized enterprises. As balance sheets strengthen, demand for loans across segments such as retail, MSMEs and services is likely to rise.

On the consumer side, improved affordability and higher disposable income are expected to support demand for housing, vehicle and personal loans. The report adds that banks are well positioned to meet this demand, with liquidity conditions remaining comfortable and competition keeping lending rates in check.

Banking system outlook remains stable

The brokerage highlighted that credit growth in the current financial year has already shown resilience despite global uncertainty and tighter financial conditions in some markets. Domestic factors, including steady economic growth and government-led capital expenditure, have continued to support loan demand.

Asset quality trends remain favourable, with non-performing assets at multi-year lows. This has allowed banks to focus more on growth rather than balance sheet repair, while maintaining prudent underwriting standards.

Risks and monitoring points

While the outlook is positive, analysts cautioned that credit growth will need to be monitored against potential risks such as uneven demand across sectors, global economic volatility and interest rate movements. Sustained expansion will depend on maintaining credit discipline as volumes rise.

In such an environment, transparent financial reporting and strong internal controls become increasingly important for both lenders and borrowers. Effective review mechanisms - similar in principle to those followed through auditing services in india - help ensure that growth in lending is supported by sound risk management and accurate financial assessment.

Overall, the report suggests that GST cuts could act as a meaningful tailwind for India’s credit cycle, reinforcing expectations of robust lending growth through FY27.