India's rapid credit expansion could pose a growing inflation risk, with bank lending rising much faster than nominal economic growth, according to Prasanna Tantri, a finance professor at the Indian School of Business.
The professor has urged policymakers to prioritise controlling credit growth, warning that unchecked lending could create inflationary pressures across the economy.
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In a post on X, Tantri pointed to the Reserve Bank of India's latest update, which showed bank credit growing at 19.1%, against nominal GDP growth of approximately 10-11%.
Mr. Tantri questioned the source of the additional credit and argued that the gap between lending growth and economic expansion should be a key indicator for policymakers.
Tantri said bank lending generates deposits and expands the money supply, while RBI-created reserves provide the liquidity required to support this process. He argued that the expansion has roots in reserve money creation over the past two years.
He suggested bringing credit growth down to 13-14% initially before aligning it more closely with nominal GDP growth.
Tantri also raised concerns about whether lending was financing productive economic activity or simply meeting demand that existing supply could not fulfil.
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RBI Lending and Deposit Rates Show Mixed Movement
Separately, the RBI's October 30 update on scheduled commercial banks showed that the weighted average lending rate (WALR) on outstanding rupee loans remained unchanged at 8.96% in September 2026.
However, the WALR on fresh loans declined to 8.51% from 8.61% in August. The one-year median marginal cost of funds-based lending rate (MCLR) also eased to 8.55% in October from 8.61% in September.
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