"There is slight improvement on retail loans, as banks had cut lending rates on vehicle and home loans, so the consumption credit has gone up," said a senior official with a public sector bank.
Banks' loans grew 1.2 per cent as of September 7 since the beginning of April, while deposits were up 3.7 per cent, according to data released by the Reserve Bank of India on Thursday.
Loans from banks have picked up since the 0.6 per cent growth from the beginning of April to August 24, according to Reuters calculations of the previous RBI data.
The RBI, in its mid-quarter review of the monetary policy on Monday, cut the cash reserve ratio, or the share of deposits banks must park with the central bank, by 25 basis points, to inject about Rs 17,000 crore into the banking system.
"The CRR cut will lead to multiple credit expansion and we should see further pick-up in loan growth," the official with the state-run bank said.
On Wednesday, the country's largest lender, State Bank of India, cut its base rate, the minimum interest rate at which it lends, by 25 basis points to 9.75 per cent, effective Thursday.
"SBI's 25 bps lending rate cut strengthens our call that the RBI's CRR cuts/OMO (open market operations) will soften lending rates to revive growth," said Indranil Sengupta, India economist at Bank of America-Merrill Lynch, in a research note on Wednesday.
The central bank forecast a credit growth of 17 per cent and deposit growth of 16 per cent for the full fiscal ending in March 2013.
Last week, the government announced big bang reforms as part of package of measures, which included opening up the supermarket sector to foreign chains, and hiking diesel prices, aimed at reviving economic growth.
Bankers expect these measures to revive investment sentiment, but credit growth may not see a significant pick-up in the rest of the year due to the ongoing political uncertainty, they said.
Typically, banks see higher demand for credit in the second half of the fiscal year, but bankers expect the credit growth to fall short of the RBI projection this year due to the slowdown in economic activity.
As of September 7, banks' credit stood at Rs 47,49,694 crore, marginally higher than Rs 47,21,792 crore two weeks ago, while deposits were at Rs 63,21,026 crore, up 0.5 per cent.