Deposit growth slips below 10% as credit rises 11.7%, gap at 200 bps

RBI data show deposit growth lagging credit growth by 200 basis points, highlighting persistent deposit tightness even as lending demand remains strong

Deposit growth in the fortnight ended December 12 slowed to 9.7 per cent year-on-year (Y-o-Y), while credit growth picked up to 11.7 per cent Y-o-Y. This resulted in a credit-deposit growth gap of 200 basis points (bps), underscoring the persistent deposit tightness in the banking system, latest data from the Reserve Bank of India (RBI) showed.

 

According to official data, overall bank credit expanded to ₹196.5 trillion as of December 12, up from ₹175.86 trillion in the same period last year. Credit grew by ₹1.2 trillion during the fortnight. Meanwhile, total deposits stood at ₹242.14 trillion in the December 12 fortnight, compared with ₹220.06 trillion a year ago. However, deposits declined by ₹45,344 crore during the fortnight, highlighting continued tightness in system liquidity.

 

 

In the previous fortnight ended November 28, credit growth stood at 11.5 per cent, while deposit growth was 10.2 per cent.

 

Indian banks find themselves in a delicate position. While they need to lower deposit rates to protect net interest margins (NIMs), they also have to mobilise deposits to fund credit growth, which is picking up in the economy and is expected to remain robust heading into the fourth quarter beginning January 2026. This leaves banks with limited room to cut deposit rates at a time when lower returns are already pushing savers away from the banking system towards equity markets.

 

The RBI cut the repo rate by 25 bps to 5.25 per cent in early December, taking the total reduction in the current easing cycle to 125 bps. According to RBI data, in response to the cumulative 100-bp cut in the policy repo rate, the weighted average lending rate (WALR) of banks has declined by 69 bps for fresh rupee loans during February-October 2025 (the interest rate effect is 78 bps). One basis point is a hundredth of a percentage point. Additionally, the WALR on outstanding rupee loans has moderated by 63 bps.

 

On the deposit side, the weighted average domestic term deposit rate (WADTDR) on fresh deposits has declined by 105 bps, while that on outstanding deposits has softened by 32 bps over the same period.

 

“While slow deposit growth is a concern, the RBI’s liquidity measures, including open-market operations (OMOs), forex swaps, CRR reduction and easing of LCR norms with effect from April 2026, should ensure that banks can comfortably sustain credit growth without aggressively competing for deposits or pushing deposit rates higher during an easing cycle. That said, the banking system’s credit-deposit ratio may structurally trend higher going forward because of these measures,” said Anil Gupta, VP and co-group head – financial services rating, Icra.

 

Earlier this week, the RBI announced a fresh round of liquidity measures through OMOs and a foreign exchange buy-sell swap, under which it will inject close to ₹3 trillion into the banking system. The central bank said it would purchase Government of India securities worth ₹2 trillion through OMOs. In addition, it will undertake a three-year USD-INR buy-sell swap of $10 billion.

 

Amid tight deposit conditions, banks have stepped up borrowing through certificates of deposit (CDs), raising over ₹50,000 crore via this route in each of the last three fortnights. In the fortnight ended December 12, banks raised ₹55,359 crore through CDs. This followed issuances of ₹77,875 crore in the November 28 fortnight and ₹54,949 crore in the November 14 fortnight.

 

CDs serve as a cost-effective alternative to bulk term deposits, contributing to banks’ overall deposit pool. They also help replenish maturing deposits, enabling smoother liquidity management and reinforcing banks’ reliance on such instruments.