India's bank credit growth quickens to 19.4% as deposit growth lags

Implications for lenders

With bank credit growing 19.4% against deposits at 17.8%, lenders that rely on bank lines may face higher pricing or shorter tenors for new facilities. Repricing new loans to the marginal cost of funds and spreading facility maturities can limit that risk. In Vietnam, where credit also outpaces deposits, lenders can check how their banks stand against the new 95% cap.

Implications

Facts

Credit and deposits: bank credit of scheduled commercial banks grew 19.4% year on year in the fortnight ending 30 September 2026 (up from 18.1% at 15 September 2026 and 11.4% a year earlier). ¹ Aggregate deposits grew 17.8% (up from 9.9% a year earlier). ²

RBI Bulletin article: an article by RBI economists in the September 2026 Bulletin, which states that its views are the authors' and not the RBI's, puts the credit-deposit ratio of scheduled commercial banks at 82.2% in March 2026 (up from 68.6% in September 2021). ³ The incremental ratio, the rise in credit against the rise in deposits over a year, reached about 114% in May 2026 (peak in May 2026; it has declined since, after exceeding 110% in FY2023 and FY2024). ⁴ In the rising phase since September 2021, capital, borrowings and other liabilities together grew by ₹40.0 for every ₹100 of deposit growth (compared with ₹32.1 in the 2002–08 rising phase). ⁵ The authors also find that banks shifted assets from investments to loans. They conclude that a "high CD ratio per se does not signal constraints in credit creation" or funding vulnerability, and that the full balance sheet should be read instead.

Prices: consumer price inflation rose to 5.54% in September 2026 (up from 4.83% in August 2026 (final)), according to provisional data from the Ministry of Statistics and Programme Implementation. ⁶

Analysis

Credit is again growing faster than deposits, but the gap is narrower than in the period when the incremental ratio peaked: deposits at 17.8% are growing far faster than a year earlier. The Bulletin article's point is that Indian banks have funded the difference with retained profits and capital, borrowings and a shift from investments to loans, not only with deposits. For lenders that borrow from banks, this matters because these are the funding sources whose cost rises first when policy tightens and inflation picks up, as it did in September.

Vietnam shows the same pattern with a different response. System credit grew 16.69% year on year at end-September, and year-to-date credit growth exceeded deposit growth by 1.47 pt in mid-September. The State Bank of Vietnam is raising the loan-to-deposit cap to 95% for banks that apply the liquidity coverage and net stable funding ratios, and is widening the funding counted in the ratio. Both moves point the same way as the Indian article: judging bank funding by liquidity and stable-funding measures rather than by the loan-to-deposit ratio alone. Thailand and Malaysia are in a different position: commercial bank loan growth in Thailand was 2.0% in the second quarter, and Malaysian household loan growth 5.2% in August, which suggests demand rather than deposit funding is the main constraint there.

What it suggests for Southeast Asia: in fast-growing credit markets such as Vietnam, the question for non-bank lenders is less whether banks have deposits and more how much of their growth relies on borrowings and capital, which reprice faster. When bank credit outpaces deposits, wholesale lines to finance companies and microfinance institutions tend to be the first to be repriced or shortened.

Counterpoints and uncertainties

The Bulletin article states the authors' views, not the RBI's, and the RBI could still act on credit growth through its supervisory tools. Year-on-year growth is measured against a weak base (credit growth was up from 18.1% at 15 September 2026 and 11.4% a year earlier), so part of the acceleration reflects the slow growth of late 2025. Quarter-end fortnights can also be lifted by temporary balance-sheet moves. In Vietnam, the higher loan-to-deposit cap applies only to banks that switch to the liquidity ratios, so banks that have not switched remain under the older limit until October 2028.