Lending by India's banks grew 19.1% in the year to Sept. 30, the Reserve Bank of India said on Friday, close to double the 11.2% pace of a year earlier, as loans to services companies, shadow lenders and industry accelerated.

The figures matter for investors across Asia because Indian bank stocks and the country's corporate borrowers are now running into a funding squeeze. Deposits are not keeping up with loans, the RBI raised its policy rate in October, and the cash surplus in the banking system has thinned quickly. Faster credit supports growth and bank earnings, but it also raises the price banks must pay to keep lending.

Where the RBI Data Show Lending Going

The central bank's monthly sectoral data, drawn from 41 lenders that account for about 95% of non-food credit, showed the strongest gains in services. Credit to that sector rose 28.3% from a year earlier, against 9.9% in September 2025. The RBI named non-banking financial companies (NBFCs), trade, commercial real estate, transport operators and professional services as the drivers.

Loans to industry grew 19.5%, up from 7.7%. Large and medium companies borrowed at a faster pace, while lending to micro and small firms grew steadily, the RBI said. Infrastructure, metals, engineering, chemicals, food processing and textiles were among the busiest industries.

Agricultural credit also rose 19.5%, compared with 8.9% a year earlier. Personal loans grew 17.3%, up from 11.5%, with housing and vehicle loans holding up and advances against fixed deposits picking up. Gold loans and education loans grew more slowly than last year, though the RBI described both as still strong.

Bank lending to NBFCs is the line regulators tend to watch. It ties the health of banks to shadow lenders that fund consumer and small-business borrowers, many of them outside the banks' own reach. Crisil expects NBFCs focused on personal loans to grow their assets by about 50% this fiscal year, according to a column in The Hans India.

Deposits Trail Loans as Funding Costs Climb

A separate RBI release, the scheduled banks' balance sheet, shows the gap with deposits. As of Oct. 15, scheduled commercial banks had about INR 227.4 trillion of credit outstanding, 18.2% more than a year earlier. Deposits from customers other than banks stood at about INR 278.8 trillion, up roughly 16.7%.

Credit fell about INR 2.5 trillion in the first half of October from the end of September, a swing that pulled headline growth down from the quarter-end peak. Business magazine BW Businessworld reported credit growth of 19.4% and deposit growth of 17.8% at Sept. 30, with the credit-to-deposit ratio at 81%.

The Hans India column, citing RBI data, put the loan-to-deposit ratio at 81.6% in mid-October, up for a third straight reading but below a May peak of 82.7%. Since April, banks have lent out 84% of every new rupee of deposits, it said.

The cost of funding has started to move. The RBI's Monetary Policy Committee voted unanimously on Oct. 7 to raise the repo rate by 25 basis points to 5.50% and shifted its stance to calibrated tightening, the central bank said. The weighted average call money rate climbed to 5.56% in mid-October, above the repo rate, and the 91-day Treasury bill yield rose to 5.73%, according to The Hans India. The RBI's net absorption of surplus cash from banks shrank to about INR 1.86 trillion by Oct. 15 from INR 4.86 trillion at the end of September, the column said, as the banking system's cash cushion thinned.

Lending Rates Ease for Now

Borrowers have yet to feel much of the tightening. Data the RBI released on the same day showed the weighted average lending rate on new rupee loans fell to 8.51% in September from 8.61% in August. The median one-year marginal cost of funds lending rate eased to 8.55% in October from 8.61%.

Deposit pricing has also softened slightly. The average rate on fresh term deposits slipped to 5.61% in September from 5.67%, and the rate on outstanding term deposits edged down to 6.55%.

Those figures largely predate the October hike. Credit rating agency CareEdge expects bank credit to grow 15% to 16% in the fiscal year ending March 2027, and sees banks paying more to fund further growth, according to The Hans India. That forecast is well below the current pace.

The next test is the festive season. Diwali falls on Nov. 8, and the RBI's sectoral credit data for October, due next month, will show whether consumer borrowing keeps pace with the corporate lending boom.