Source: RBI Data as of 31st August 2026
- India’s banking system continued to witness strong credit momentum, with loan growth remaining the key driver of the cycle. As of August 2026, bank credit expanded sharply by 20.3% on-year, significantly outpacing deposit growth of 18.7% on-year. The persistent gap underscored robust demand for credit across segments, particularly retail and MSMEs, even as deposit mobilization struggled to keep pace.
- The trajectory of credit growth remained consistently elevated in FY27, rising from ~18% in March 2026 to ~20% by August 2026, highlighting a sustained demand-driven cycle supported by economic activity and consumption trends. In contrast, deposit growth, while improving, largely lagged behind, resulting in a structural funding gap within the banking system.
- Deposit growth saw a temporary acceleration, aided by the Reserve Bank of India's FCNR(B) mobilization scheme, which brought in US$132.98 billion in FCNR(B) deposits by August 31, 2026. This also led to a surge in system liquidity, with surplus liquidity rising to around Rs 11 lakh crore in early September, providing near-term funding support to banks.
- However, despite this liquidity boost, the underlying imbalance remained intact, with credit demand continuing to outstrip deposit mobilization. As FCNR-driven flows began to normalize and liquidity was gradually absorbed, the sustainability of strong credit growth depended on a more durable pickup in domestic deposits.
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