Retail Credit Soars: GST and Festive Boost Fuel Strongest Growth Since 2021; Risks Emerge in New Markets

India’s retail credit market is witnessing a robust revival, with demand strengthening significantly in the run-up to the crucial festive season, according to a recent analysis by credit bureau TransUnion CIBIL. The upswing is being driven primarily by the positive impact of Goods and Services Tax (GST) rationalisation measures, combined with buoyant consumer sentiment.

The report, covering the July-September 2025 quarter (Q2 FY25) and setting the tone for the upcoming months, highlighted that the comprehensive Credit Market Indicator (CMI)—a key gauge of the health of the lending ecosystem—advanced to 99 in the September quarter, up from 98 in the preceding period. This metric reflects a positive trend across demand, supply, and asset quality.

Consumption Surge Fueled by ‘GST 2.0’

A major catalyst for the accelerated demand was the GST rationalisation program, often referred to as ‘GST 2.0,’ which was implemented in September 2025. By enhancing affordability across key consumer segments, the reforms directly stimulated consumer purchases financed by credit.

The impact was particularly pronounced in vehicle and consumer durable financing during the pre-festive period:

The data confirms a markedly sharper impact from the current year’s festive build-up compared to 2024, demonstrating strong pent-up consumption desire. Furthermore, the CMI for credit demand specifically rose to 95 in the quarter, an increase from 93 a year earlier.

Credit Deepens in Semi Urbans – Rurals and Among Younger Borrowers

The growth is not limited to metropolitan areas. Credit supply conditions also saw improvement, reaching a CMI of 97. Notably, secured lending products—such as home loans, auto loans, and gold loans—were the main drivers of this supply expansion.

Significantly, semi-urban and rural regions are rapidly becoming the engine of retail credit expansion, accounting for 61% of the total credit supply during the quarter. This geographical shift is complemented by a demographic one:

• The year-on-year growth rate for new-to-credit consumers expanded by 5%.
• Borrowers under the age of 35 recorded a substantial 12% year-on-year growth, showing strong participation in both semi-urban and rural markets.

“GST 2.0 was a much-needed step to stimulate economic growth, and its positive impact is evident in the improvement of consumer sentiment and the upward trend in credit demand,” commented Bhavesh Jain, Managing Director and Chief Executive Officer of TransUnion CIBIL.

Industry Outlook: Growth vs. Risk Management

The optimism from credit bureaus is echoed by rating agencies, which forecast sustained credit momentum for the fiscal year. CRISIL Ratings projects overall bank credit growth at 11-12% for the current fiscal year (FY26), predicting that the retail credit segment will be the primary beneficiary of the second-half boost driven by consumption and regulatory support.

While the overall asset quality remains stable (with the CMI for performance at 105), the need for caution has been flagged. ICRA, another leading rating agency, noted that the fresh NPA generation rate had seen an uptick, pointing to emerging stress in the unsecured loan segment. TransUnion CIBIL’s report similarly highlighted initial signs of stress, specifically in micro-loans against property and small-ticket housing loans.

Lenders are now walking a tightrope, balancing the robust growth opportunities driven by festive demand and GST rationalisation against the need for proactive risk management. As the market continues to expand, especially into new demographic and geographic territories, the industry consensus remains focused on responsible lending practices to ensure the long-term sustainability of the credit upcycle.