GST cuts boost credit growth; system credit to rise 12% in FY26, 13% in FY27: MoSL
- IBEF
- January 5, 2026
According to a report from Motilal Oswal Financial Services (MoSL), the lower GST Rates will have a positive effect on credit demand across all sectors, which should help to support an improvement in overall system credit growth. MoSL estimates that the overall System Credit Growth will decrease to 12% and then increase to 13% from FY26 to FY27 due to the combination of Better Affordability, Lower Tax Incidence, and higher Consumption Demand because of Lower GST Rates. As businesses and households have an easier time with cash flow because of the Lower GST Rates, they will have more confidence to borrow and continue increasing their credit use.
A judicious use of credit to finance the retail consumption and services sectors has been noted in the report, and this is likely to benefit from the tax reductions. Furthermore, the positive conditions for demand, coupled with continuing stability of asset quality and appropriate levels of capital in the banks, are expected to be a foundation for continuous growth in retail credit. According to MoSL, although the growth of corporate credit will remain restricted during the transition phase, decreased cost pressures and improved profitability of businesses could lead to an increase in the demand for borrowing over time. In conclusion, tax cuts are viewed as a long-term benefit for credit growth and have a favourable impact on the growth of banks' lending to support ongoing growth in the economy.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.
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