New Delhi, [India] July 20 : Bank credit growth is expected to remain robust despite a persistent gap between credit and deposit growth, with Indian banks entering a "goldilocks period" supported by strong capital buffers and low non-performing assets, according to a report by SBI Research.
The report noted that the banking system has witnessed sustained expansion in credit since FY23, with scheduled commercial banks' credit growing 18.6 per cent for the fortnight ended June 30, 2026, while deposit growth stood at 13.3 per cent.
"Banking system has experienced persistent and rapid expansion in bank credit with a growth of 18.6% for the fortnight ended 30 June'26... Since FY23, credit growth has consistently surpassed the deposits growth, which has resulted in gap widening to 5.3% in June 2026," the report said.
According to the report, the continued strength in credit growth is being driven by a shift in lending patterns after the RBI's regulatory measures on unsecured retail lending. Credit growth has increasingly flowed towards industry, finance and other productive sectors, aided by the Emergency Credit Line Guarantee Scheme (ECLGS).
It observed that post-2022, working capital loans such as cash credit, overdrafts, demand loans and export credit have grown faster than overall credit and term loans, particularly across agriculture, industry and services. The report attributed this trend to multiple supply-side disruptions, including the COVID-19 pandemic, the Russia-Ukraine conflict, supply chain disruptions and the ongoing West Asia conflict.
The report also highlighted that external supply shocks have had a greater impact on credit growth than on deposits, resulting in a widening liquidity gap.
However, despite the widening gap between deposits and credit, SBI Research maintained a positive outlook for the banking sector.
"Indian banks are well-capitalised, with CRAR holding strong and low NPA, providing a significant cushion for credit expansion and absorption of any macro-driven stress... Indian banks are currently in a goldilocks period... Credit growth is expected to remain strong, supported by consumption demand & capex momentum; Banks to prioritise balance sheet discipline," the report added.
The report added that deposit growth is expected to improve in FY27, supported by inflows through FCNR(B) deposits, although the gap between credit and deposits may persist if geopolitical risks and external supply shocks continue. It also said liquidity management strategies would need to account for such supply-side shocks, while long-term energy decoupling remains critical for sustaining stable credit growth and capital formation.