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India's Credit Boom Shifts to Small Towns
15 Dec, 2025
Summary
- Semi-urban and smaller towns are now the main drivers of credit growth.
- Public Sector Banks lead credit expansion, outperforming private banks.
- Credit penetration is accelerating significantly in non-metro areas.
India's credit cycle is poised for another strong growth phase by the end of FY26, with a notable shift towards semi-urban and smaller towns as key contributors. These locations have been leading credit growth for several years, driven by increased lender presence, digital adoption, and substantial room for expansion, particularly in areas with populations under 1 lakh.
Public Sector Undertaking (PSU) banks have emerged as frontrunners in this credit expansion. Their Credit Market Indicator (CMI) has surpassed that of private banks and non-banking financial companies (NBFCs). This success is attributed to strategic growth in mortgage and housing loan books post-COVID, leading to improved portfolio quality and overall performance across all CMI parameters.
While the overall credit growth has moderated from post-COVID highs, the underlying trend remains positive, with the festive season providing a temporary but significant boost to credit activity. Retail products like vehicle and consumer durable loans saw strong demand, alongside a jump in gold loans on the supply side.
