HSBC Global Research Report says softening growth in the formal sector begins to weigh overall credit growth. The report notes that after several years of strong growth, the formal sector is expected to slow down in 2025.
“This is caused by factors such as strong stock market earnings and wage growth after strong growth,” the report added.
As of June 2025, India’s bank credit growth rate was 16%, and now it has dropped to 9%.
The slowdown in credit growth reflects a sharp decline reflects a decrease in borrowing and weak economic demand.
The report titled “India: Credit, Deposits and Market Memory” states that just as earlier problems are related to real economic changes, the current slowdown in credit growth is also rooted in this.
The economy’s GDP growth is weak, reducing the overall demand for borrowing. More importantly, growth from the formal sector to the informal sector has changed.
As formal sectors performed poorly this year, there is a smaller demand for loans for investments such as buying homes.
The report further added that, meanwhile, people in the informal sector are seeing better incomes in agriculture and other work – so they don’t need to take as many personal loans as possible to support their spending. As a result, both sides squeezed credit growth.
“Investment demand (such as housing loans) may be very victorious this year. As the informal sector benefits from better real income (farm and non-farm), it may also be weak to require personal loans to fund consumption,” the report added.
Speaking about possible solutions, the report added that at a time when global supply chains are re-phased, it could become a meaningful producer and commodity exporter if India can make the right reforms, which could stimulate investment, credit and GDP growth.
The HSBC report added: “Reforms include lowering tariff rates, signing trade agreements, welcoming foreign direct investment inflows and improving the ease of doing business. It has begun. But for influence, reforms need to be carried out in depth.”
