New Delhi [India], September 27 : India’s rising credit-deposit ratio does not, by itself, indicate a funding constraint or vulnerability in the banking system, with the Reserve Bank of India’s finding in its latest bulletin that banks remain well-capitalised and liquid even as credit growth continues to outpace deposits.
RBI in its report said the credit-deposit ratio of scheduled commercial banks rose from 68.6 per cent in September 2021 to 82.2 per cent in March 2026. The incremental credit-deposit ratio had peaked at around 114 per cent in May 2026 before declining thereafter.
The analysis said the ratio needs to be viewed alongside the broader balance sheet of banks rather than as a standalone indicator of funding stress.
According to the report, deposits are created through multiple channels, including bank credit, investments and foreign capital inflows. At the same time, deposits can be affected by cash withdrawals, foreign transactions and other movements across the financial system.
In the current phase, the RBI said a decline in banks’ investment-deposit ratio and a rise in bank capital had contributed to the increase in the credit-deposit ratio. Foreign capital inflows, particularly through FCNR(B) deposits, subsequently strengthened deposit growth and helped moderate the incremental ratio.
Aggregate deposits of scheduled commercial banks grew 17.8 per cent year-on-year as of August 31, 2026, the highest rate in 15 years, according to the Bulletin. As of September 15, bank credit growth stood at 18.1 per cent, while deposit growth was 17.3 per cent.
The banking sector’s liquidity and capital buffers also remain strong. The Bulletin noted that banks were maintaining a liquidity coverage ratio of around 125 per cent, while gross non-performing assets had fallen to historic lows and capital adequacy remained well above regulatory requirements.
RBI also highlighted the growing role of non-bank financial institutions in government securities markets, noting that NBFIs had surpassed commercial banks as the largest holders of government securities.
Looking ahead, the Central bank said the credit-deposit ratio should not be used in isolation to assess the banking system’s ability to fund credit growth. A broader assessment of deposits, capital, borrowings, investments, foreign assets and liquidity conditions would provide a more meaningful picture.
The report concluded that the current rise in the ratio coincides with a growing economy and a sound banking system, with prudential requirements being adequately met.