A recent analysis by the State Bank of India (SBI) indicates that the pace of bank credit expansion in India, which witnessed a slowdown in recent quarters, is poised for a significant recovery. The report, published on December 1, 2025, attributes the anticipated rebound to companies exhausting funds raised through initial public offerings (IPOs) and a concurrent rise in demand for working capital to fuel day-to-day operations.
The IPO Effect: A Temporary Drag on Credit
The SBI report identifies the recent surge in IPO fundraising across multiple sectors as a primary, yet temporary, factor behind the moderated credit offtake. Historically, years marked by high IPO mobilisation often see a corresponding dip in bank credit growth. This negative correlation, though modest, suggests that when corporations secure substantial capital from equity markets, their immediate reliance on bank borrowing diminishes.
Sectoral data reinforces this pattern. Industries including finance, automobiles, pharmaceuticals, telecom, consumer durables, and infrastructure have previously recorded lower credit growth during periods when they were more active in raising funds via IPOs. The capital raised is typically allocated for expansion plans, capital expenditure, or repaying existing debt, which reduces short-term loan requirements from banks.
Turning Point: Rising Working Capital Needs Signal Change
The report highlights clear signs of a turning tide. Companies across several sectors have now begun to increase their utilisation of working capital, a key early indicator of strengthening credit demand. As business activity remains robust and production scales up, firms require more financing to manage expenses related to raw materials, inventories, and supply-chain operations.
With internal accruals and the liquidity from IPO proceeds largely deployed, corporations are returning to banks to secure fresh credit lines. This shift is occurring against the backdrop of a healthy overall economic momentum, supported by strong GDP numbers. A vibrant economy naturally encourages companies to seek higher funding for growth, which will directly reflect in stronger credit growth figures.
The Road Ahead: Liquidity Management and Robust Recovery
In this evolving scenario, the report underscores the important role of the Reserve Bank of India (RBI). The central bank is expected to maintain proactive liquidity management to ensure that the banking system has sufficient funds to meet the impending rise in credit demand. Adequate systemic liquidity will be crucial to keep borrowing conditions stable and support a smooth recovery in loan growth.
To summarise, the SBI report outlines a confluence of factors setting the stage for a credit growth rebound: rising working capital requirements, the fading dampening effect of IPO liquidity, and sustained robust economic activity. Consequently, India's bank credit growth is firmly on track to accelerate in the coming quarters.
