India’s banking sector witnessed a strong rebound in credit growth in FY26, even as deposit mobilisation struggled to keep pace, highlighting emerging liquidity and funding challenges.
According to data from the Reserve Bank of India (RBI), credit growth picked up significantly after a muted performance in FY25.
Key Growth Trends
- Credit Growth (FY26): 16.08% (Y-o-Y)
- Deposit Growth (FY26): 13.47% (Y-o-Y)
This marks the fastest credit expansion since FY24, when growth had exceeded 20%.
Total Outstanding (FY26):
- Bank Credit: ₹213.61 trillion
- Deposits: ₹262.30 trillion
Recent Momentum (March-End Data)
- Credit increased by 2.8% (₹5.92 trillion) in the last fortnight
- Deposits rose by 4.87% (₹12.18 trillion)
However, experts caution that year-end figures may be slightly inflated due to changes in RBI’s reporting methodology.
Drivers of Credit Growth
1. Strong Corporate Demand
- Corporates are increasingly shifting to bank loans
- Due to:
- Lower lending rates
- High bond market yields
2. MSME and Retail Segment Growth
- Rising demand from:
- MSMEs
- Retail borrowers (especially gold loans)
3. Cost Advantage Over Bond Markets
- Elevated global yields and volatility
- Made bank borrowing more attractive
Funding Challenges for Banks
Despite strong credit growth, banks face deposit mobilisation issues:
- Deposit growth is lagging behind credit growth
- This creates balance sheet mismatches
Increasing Reliance on CDs
Banks are raising funds through Certificates of Deposit (CDs):
- ₹5.27 trillion raised in Q4 FY26
- ₹14 trillion total in FY26
- ₹2.14 trillion issued in March alone
This indicates tight liquidity conditions in the system.
Impact of Global Factors
- High global interest rates
- West Asia conflict
- Rising hedging costs
These factors have:
- Made external commercial borrowing (ECB) expensive
- Reduced reliance on overseas funding
Performance of Major Banks
Leading banks like:
- State Bank of India
- HDFC Bank
- ICICI Bank
- Axis Bank
- Kotak Mahindra Bank
have reported strong growth in corporate and MSME lending portfolios.
Outlook for FY27
- Credit Growth Forecast: 13% – 14.5%
- Deposit Growth Forecast: 11% – 12%
Growth is expected to be driven by:
- MSME sector
- Retail lending
However, sustaining high credit growth will depend on:
- Improved deposit mobilisation
- Liquidity conditions
Key Concerns
- Credit growth outpacing deposits
- Rising cost of funds (due to higher CD rates)
- Pressure on bank margins
- Potential liquidity mismatches
Conclusion
The sharp rise in bank credit in FY26 reflects strong economic activity and borrowing demand, especially from corporates and MSMEs. However, the widening gap between credit and deposits signals a need for banks to strengthen funding sources to sustain growth momentum in the coming years.