What Led Scheduled Commercial Banks to Report 11.3% Loan Growth in Q2?
Synopsis
Scheduled commercial banks have achieved an impressive 11.3% YoY increase in net advances for Q2 FY26. This growth, propelled by retail and MSME lending, reflects a robust banking sector amidst evolving economic conditions.
Key Takeaways
SCBs achieved 11.3% YoY loan growth in Q2 FY26.
Public sector banks led with 14.5% growth in advances.
Deposits increased by 11% at public banks and 10% at private banks.
The CASA ratio fell to 37.4% .
Loan demand is projected to rise in Q3FY26.
New Delhi, Oct 29 (NationPress) Scheduled commercial banks (SCBs) have witnessed a remarkable 11.3% year-on-year (YoY) surge in net advances for Q2 FY26, primarily fueled by a robust performance in retail and MSME lending, according to a report released on Wednesday.
The analysis from CareEdge Ratings highlights that credit growth has regained momentum across both retail and MSME sectors. However, profit margins faced challenges due to accelerated lending rate adjustments and a slower pace of deposit rate repricing.
Public sector banks have shown a more vigorous growth trajectory, reporting a 14.5% YoY increase in advances, while their private sector counterparts achieved a more modest growth of 9.4% YoY.
In terms of deposits, public sector banks experienced an 11% increase, while private banks recorded a 10% rise. The CASA ratio dipped to 37.4% from 38.5% a year prior, attributed to a nearly 12% increase in term deposits.
Throughout Q2 FY26, banks demonstrated consistent performance with slight net interest margin (NIM) pressure while enjoying steady loan growth, bolstered by festive-driven demand in the auto sector, GST reductions, and high bond yields, pushing the credit-deposit (CD) ratio to 85.2%, as noted in the report.
The weighted average lending rate (WALR) for SCBs was recorded at 9.32%, contrasting with an 8.80% average yield, indicative of a quicker adjustment in loan repricing following rate cuts, according to the ratings agency.
Looking ahead, CareEdge Ratings anticipates that loan demand will see further enhancement in Q3FY26, thanks to festive expenditures, GST advantages, and an uptick in credit card and consumer durable-linked products.
During this quarter, SCBs faced a 21 basis points reduction in net interest margin, falling to 3.13% on a YoY basis, as per the report.
This decline has been attributed to the rapid transmission of lending rate cuts, outpacing the slower adjustments in deposit rates, alongside subdued growth in higher-yielding sectors such as personal and microfinance loans.
Point of View
I firmly believe that the recent 11.3% loan growth among scheduled commercial banks illustrates a resilient banking sector adapting to market needs. The notable performance in retail and MSME lending signals a positive trajectory for economic recovery, benefiting consumers and businesses alike.
NationPress
12 May 2026
Frequently Asked Questions
What is the loan growth percentage for SCBs in Q2 FY26?
Scheduled commercial banks recorded an impressive 11.3% year-on-year growth in net advances for Q2 FY26.
Which segment saw the highest growth in lending?
The retail and MSME segments experienced significant momentum, contributing greatly to the overall loan growth.
How did public and private sector banks perform?
Public sector banks reported a 14.5% YoY growth in advances, while private banks achieved a 9.4% YoY increase.
What factors are influencing loan demand?
Loan demand is expected to strengthen due to festive spending, GST benefits, and rising consumer-driven products.
What is the current CASA ratio for SCBs?
The CASA ratio has decreased to 37.4% from 38.5% a year earlier.
