Bank deposit growth accelerated sharply to 15.4% year-on-year as of July 31, 2026, marking its fastest pace since December 2016, even as bank credit growth strengthened to 19.3%, according to CareEdge Ratings.
Deposit growth rose from 12.7% as of July 15 and 10% in the corresponding period last year. Credit growth, meanwhile, accelerated from 17.7% in the previous fortnight and 10% a year earlier.
The sharp improvement in deposits narrowed the credit-deposit growth differential to around 395 basis points (bps), from 503 bps in the previous fortnight, easing pressure on banks’ funding positions.
Deposits surge on FCNR(B) mobilisation
Aggregate bank deposits increased to ₹269.4 lakh crore as of July 31, with incremental deposits rising by ₹6.6 lakh crore during the fortnight.
Time deposits were the main driver, growing 14.8% year-on-year to ₹235.1 lakh crore and accounting for 87.3% of total deposits. This compares with 9.2% growth a year earlier.
Demand deposits also remained resilient, expanding 19.3% year-on-year, marginally above the 18.7% growth recorded in the corresponding period last year.
A key catalyst behind the sharp fortnightly increase was the strong mobilisation of FCNR(B) deposits following the Reserve Bank of India’s special swap facility. Inflows under the facility reached US$36.7 billion by July 31.
The FCNR(B)-led mobilisation has provided banks with an additional source of foreign currency funding and greater near-term liquidity flexibility.
However, CareEdge expects the boost from FCNR(B) deposits to moderate as the special facility winds down. The RBI’s decision to advance the hedging-window deadline to August 31 from September 30 also reflects the stronger-than-expected response.
Credit growth reaches 19.3%
Bank credit outstanding rose to ₹220.8 lakh crore as of July 31, with credit expanding by around ₹3.45 lakh crore during the fortnight.
Cumulative credit expansion in FY27 so far has reached ₹7.18 lakh crore, almost three times the ₹2.58 lakh crore addition recorded during the corresponding period last year.
At 19.3%, the latest year-on-year credit growth is the strongest since May 2024. CareEdge, however, noted that the acceleration partly reflects a favourable base effect and the change in the fortnightly reporting reference period.
Credit growth remains broad-based, supported by resilient retail lending, continued financing to MSMEs, sustained demand from services and infrastructure-linked sectors, and healthy bank funding to NBFCs. Elevated capital-market rates have also supported bank lending.
The loan-to-deposit ratio consequently moderated to 81.9% from 82.7% in the previous fortnight, as deposits grew faster than credit during the period.
Credit momentum likely to normalise
Despite the strong headline growth, CareEdge expects bank credit expansion to moderate over the course of FY27.
Near-term credit demand remains positive, supported by improved liquidity, easier access to market-based funding and healthy underlying demand. However, the current pace is unlikely to be sustained throughout the year.
As the favourable base effect normalises in the second half of FY27, corporates and NBFCs are also expected to increasingly access bonds and other market-based sources of finance. CareEdge therefore expects bank credit growth to settle in the 14.5%-15.5% range in FY27.
The key issue for banks will consequently be maintaining the pace of domestic deposit mobilisation once the FCNR(B)-driven surge fades.
Funding conditions improve
The latest data suggest a temporary but meaningful improvement in banks’ funding dynamics. Incremental deposits of ₹6.6 lakh crore during the fortnight were almost twice the incremental credit addition of ₹3.45 lakh crore.
This has helped reduce the credit-deposit growth gap and brought down the loan-to-deposit ratio, giving banks greater headroom to support lending.
At the same time, sustained growth in retail and term deposits will remain important as credit demand stays elevated. Banks are continuing to strengthen their liability franchises, although competition for household savings could constrain the pace of further deposit acceleration.
The weighted average call rate (WACR) remained unchanged at 5.30% as of July 31, staying 5 bps above the prevailing repo rate of 5.25%.
Overall, the latest numbers point to a healthier balance between deposit mobilisation and credit expansion. But with the FCNR(B) boost likely to fade, the sustainability of deposit growth—and not just the headline 15.4% figure—will be a key indicator for banks’ ability to maintain credit momentum through the rest of FY27.