High credit-deposit ratio does not signal funding constraint for banks: RBI bulletin

India's rising credit-deposit ratio does not necessarily signal a funding crisis for the banking system, according to the Reserve Bank of India's latest bulletin. Scheduled commercial banks' credit-deposit ratio climbed from 68.6% in September 2021 to 82.2% in March 2026. The ratio peaked at around 114% in May 2026 before dropping afterward.

The RBI stresses that the ratio must be considered in the context of the broader banking balance sheet and not as a standalone sign of funding stress. Deposits arise from various sources, including bank credit, investments, and foreign capital inflows. They can also be affected by cash withdrawals, foreign transactions, and other financial system movements.

In the current phase, a decline in banks' investment-deposit ratio and an increase in bank capital have contributed to the rise in the credit-deposit ratio. Foreign capital inflows, especially through FCNR(B) deposits, have bolstered deposit growth and helped lessen the incremental ratio. As of August 31, 2026, aggregate deposits of scheduled commercial banks grew by 17.8% year-on-year, the highest rate in 15 years. Bank credit growth stood at 18.1% as of September 15, 2026, while deposit growth was 17.3%.

The banking sector remains well-liquid and capitalised. Banks maintain a liquidity coverage ratio of approximately 125%, while gross non-performing assets have fallen to historic lows, and capital adequacy exceeds regulatory requirements. The RBI cautions against using the credit-deposit ratio in isolation to evaluate the banking system's ability to fund credit growth.

A more comprehensive assessment of deposits, capital, borrowings, investments, foreign assets, and liquidity conditions would offer a clearer picture. The Central Bank concludes that the current rise in the ratio coincides with an expanding economy and a robust banking system, with prudential requirements being met adequately.