Hi everyone,  

Welcome to the 168th edition of The Pattern, a weekly newsletter where we dive into the latest from the world of economy, technology and finance. Let’s get right into it! 

Even as the economy ebbs and flows, all eyes remain on the performance of the banking system. Especially, credit offtake as it fuels the rocket ship of economic growth.  

Following the June rate cut, credit demand did improve modestly, and the RBI also noted a 4.3 percent increase in its Financial Inclusion Index. All good news but there’s lot more that was left to be desired.  

This was an interesting quarter full of twists and turns which leave us with a lot to ponder and more to look forward to. Let’s look at this through some data points that can help clarify the picture a bit more. 

1. Housing Finance: The flag bearer of hope  

A home is more than a shelter – it's also a refuge in times when there’s storms outside. For the Indian economy, Housing finance, coincidentally, is the same.  

 At a time when retail and unsecured credit is surrounded by question marks, housing finance offers the best hope for growth and uplifting lenders’ top and bottom lines.  

What's changed in this quarter? The borrowing pattern.  

 Moving from inclusion and sustainability, the paradigm is shifting towards stronger and lower-risk borrower profiles. This shift is due to rising property prices in urban areas. Bangalore itself saw a 79% rise in real estate prices in 5 years. PSBs have stepped up with competitive rates and strong policies, while PVBs are being more cautious and selective, focusing on quality borrowers.  

 However, despite all the exuberance, there’s still correction in the sector and a bit of recalibration.  

 In FY25, home loan originations grew modestly by 2.7% to approximately ₹10.7 lakh crore, significantly slower than the 9.4% growth in FY24. The number of loans taken fell to 34.7 lakh from 36.6 lakh the year before.  

 Lower RBI rates have reduced profit margins for lenders. This has squeezed margins for HFCs, dropping disbursal rates by 26% from the previous quarter. The overall assets under management (AUM) for HFCs crossed ₹3.7 lakh crore with slow but positive growth. With prime housing financiers in the scene, gross NPAs are likely to decline to 1.6% from 1.7%.  

 Lenders are focusing on safer bets—stronger borrowers with stable incomes and better credit rather than focusing on new-to-credit or thin-file borrowers. This strategy is helping the sector absorb shocks and maintain stability, keeping inclusion on the back burner. Borrowers who are new to credit, self-employed, or have limited credit history are likely to face stricter controls. 

 2. Credit Cards: Back in the game 

After having a tough Q1, credit cards seem to be making a comeback. Life in plastic isn’t really fantastic for most. Credit cards have often been the harbinger of overleverage and discretionary spending among citizens who probably can’t afford to spend. 

Hence, during a period of economic slowdown and uncertainty – credit card spends fell off a cliff. June 2025 was the cautious peak. Monthly spends dropped to ₹1.83 lakh crore—the lowest in four months—but were still 5% higher than previous June.  

 RBI's directive to deactivate cards inactive for 365 days also helped trim the numbers. Also, new credit card issuances fell by 26.4% in FY 25.  

 July flipped the script. Spending rose 5.5% in one month to ₹1.93 lakh crore. Net new cards added jumped to 425,000, pushing the total base to nearly 111.6 million.  

 How did that happen?  

Part of the answer: risk-based pricing is reshaping credit card underwriting in India. 

 3. PSBs and NBFCs: Getting the momentum going 

In Q1, public sector banks and large NBFCs did most of the heavy lifting, while private banks strategically chose to be cautious. 

 Loan portfolios quietly shifted more to secured high-ticket loans. Meanwhile, lending to the services sector slowed down, and deposits didn't give banks much support. The key message: growth is still happening, but on carefully chosen turfs.  

Looking at data for the 3 months ending March 2025: public sector banks saw a 3% rise in loan accounts disbursed, 18% increase in loan value, and 18% rise in outstanding balances. Private banks, however, saw a 12% drop in accounts disbursed, only a modest 2% rise in value, though their outstanding loans still rose 18%. NBFCs, including housing finance companies and fintechs, posted strong growth with 13% more accounts disbursed, 26% higher loan value, and 25% more outstanding balances. 

Moving into Q1 FY26, the credit market cooled down. Bank credit rose by just 1.3% quarter-on-quarter to ₹184.83 lakh crore. Personal loan growth slowed to approximately 14.7% year-over-year, and lending to the services sector declined by 0.6% or ₹30,631 crore. In simple terms, banks are still lending, but only to selected, lower-risk borrowers within secured retail. The pause by private banks is not a sign of weakness but a deliberate strategy. 

4. Consumer credit: Personal tightens, auto accelerates 

Sales of big-ticket consumer durables, such as air conditioners or refrigerators, have slowed significantly as the dominant young, urban borrowers who favoured easy EMIs are gradually stepping back. Instead, more borrowers from semi-urban and rural areas are driving demand. This shift is compelling lenders to rethink loan design and risk assessment, emphasising local income patterns and seasonal economic cycles to manage credit performance better. 

 Auto did the opposite of durables: it picked up. In Q1 FY26, outstanding car loans rose by ₹29,492 crore—up 4.7% quarter on quarter and 10.8% YoY to ₹6.52 lakh crore, lifting auto's share of bank credit to about 3.5%.  

 The drivers are clean: prime borrowers, predictable cash flows, and EMI structures that don't overreach. Put simply, unsecured personal credit is being curated; secured auto credit is slowly winning the race, while the rest of the retail sector finds its footing. 

 5. Banking Sector: Facing margin pressure 

The Indian banking sector experienced mixed performance in Q1 FY26, with overall earnings pressured by a 100-basis point cut in benchmark interest rates by the RBI since early 2025. This led to tighter net interest margins (NIM) across major banks, resulting in net income declines for several large lenders.  

However, resilient players like SBI and ICICI Bank still reported year-on-year profit growth. RBI's basis point cuts are likely to inject around ₹2.5 lakh crore into the banking system by year-end. Despite some marginal deterioration in asset quality and higher provisioning, analysts remain optimistic, expecting non-performing loans to remain near historic lows, which indicates overall sector stability amid the evolving interest rate environment. 

The hidden pattern 

The growth curve for credit as an industry segment in the FY25-26 Q1 was not steep, but slowly upward rising. Housing loans remained the cornerstone, while credit cards too us by surprise. Auto loans quietly sustained momentum, even as demand for big-ticket durables tempered. Public sector banks and large NBFCs led the charge, with private banks selectively capitalising on opportunities.  

Lenders are still pushing credit, but they’re choosing stronger borrowers, bigger tickets, and products with collateral and cash flows that behave. That could mean that FY26 will be a year of steady, lower-drama compounding rather than headline-chasing. Hope, perhaps, is a strategy.  

Lenders are still pushing credit, but they’re choosing stronger borrowers, bigger tickets, and products with collateral and cash flows that behave. That could mean that FY26 will be a year of steady, lower-drama compounding rather than headline-chasing. Hope, perhaps, is a strategy.  

That's a wrap for this week. As always, leaving you with a few reads to explore. Have a great weekend! 

Reading List: 

1. Will your loan application be rejected if you are first-time borrower with no credit history? Here's what Finance Ministry says

2.  India considers halting shadow banks from duplicating business 

3. Low investment optimism among private corporates, total cost of pvt sector project declines 6% in FY25: RBI study 

4. Rising stress in MSME, vehicle loans worries banks, NBFCs 

5. Housing finance companies struggle as mortgage rate war intensifies 

Thank you for reading. If you liked this edition, forward it to your friends, peers, and colleagues. You can also connect with me on X here and follow FinBox on LinkedIn to get the latest updates. 

Cheers, 

Mayank