GST cuts spark festive boom: Bank credit doubles as India’s spending spree powers post-monsoon surge

India’s festival economy roared to life this season as bank credit more than doubled between September and October 2025, powered by a wave of spending unleashed by GST reforms, Diwali discounts, and resurgent consumer sentiment.

According to the Reserve Bank of India’s latest data, bank advances rose by an unprecedented ₹4.1 lakh crore during the six weeks from September 5 to October 17 — touching ₹192.19 lakh crore, compared with ₹188 lakh crore at the start of the period. In the same window last year, credit had increased by just ₹1.91 lakh crore.

Analysts said the surge — the sharpest in nearly a year — was driven by seasonal demand, reduced GST rates, and easier access to credit. Retail loans for vehicles, home appliances, and personal goods saw the strongest jump, alongside a marked rise in MSME financing.

“The GST rate cut from September 22 triggered a steep rise in vehicle loans and festival-linked purchases. Our vehicle loan segment grew over 25% in Q2,” said Canara Bank MD & CEO K. Satyanarayana Raju, adding that MSME credit expanded by 12.7% during the same period.

Next-Gen GST fuels consumption revival

The government’s Next-Gen GST reform, which came into effect on September 22, simplified the structure into two slabs — 5% and 18%. The move sharply reduced prices of consumer goods, automobiles, and housing materials, providing an immediate boost to purchasing power.

At a recent press conference, Finance Minister Nirmala Sitharaman and her Cabinet colleagues Piyush Goyal and Ashwini Vaishnaw said the benefits of the tax cuts were already reaching end consumers, catalyzing demand and investment.

“Because of GST reforms, consumption will increase significantly — likely more than 10% this year — translating into an additional ₹20 lakh crore of spending compared to last year,” Vaishnaw projected, adding that India’s nominal GDP could see a notable lift from the consumption boom.

Inflation cools, confidence climbs

The timing of these reforms coincided with cooling inflation and a favourable monsoon, further strengthening household balance sheets. Consumer Price Index (CPI) inflation eased to 1.5% in September, its lowest since 2017, boosting real disposable incomes and freeing funds for discretionary spending.

Economists at Bank of Baroda noted that the third quarter of FY2025-26 is “shaping up to be exciting,” as pent-up demand converts into purchases that were earlier deferred ahead of the new GST rollout.

“With commodity prices down nearly 10% and tax relief from the Union Budget easing pressure on incomes, we expect a strong double-digit rise in sales of discretionary items,” the report said.

Outlook: Strong tailwinds for growth

Industry experts anticipate that the consumption-led credit expansion will sustain into November and beyond, as year-end offers, real-estate deals, and festival-linked incentives continue.

With credit growth up 11.45% year-on-year and tax reforms reviving consumer confidence, India’s banking sector enters the second half of FY2025-26 with robust momentum — signaling not just a festive season windfall, but the early signs of a broader economic upcycle driven by consumption and confidence.