Credit growth surged to 17.7% for the fortnight ending May 31, 2026, marking the highest recorded performance in the current financial year and the strongest year-on-year expansion since June 2024. According to The Times of India, outstanding bank credit rose by ₹1.5 lakh crore since March 31, 2026, with total credit reaching ₹215.2 lakh crore. However, this robust credit expansion has been offset by a significant contraction in deposits, creating a challenging funding environment for banks.
The divergence between rising credit and falling deposits has created a substantial funding gap, with the wedge between loans and deposits reaching approximately ₹3.8 lakh crore by May 31, 2026. As reported by The Times of India, aggregate bank deposits declined by ₹2.3 lakh crore since March 31, 2026, representing a 0.9% contraction and taking total deposits to ₹260 lakh crore. This structural mismatch has driven the credit-deposit ratio above 80% since October 2025, reaching 82.8% in May 2026 after peaking at over 83% at the end of March 2026.
The strong credit demand has been primarily driven by oil marketing companies facing lower realisations after the recent surge in crude oil prices, as reported by The Times of India. Bankers attributed the robust lending growth to multiple factors, including these companies' need for additional funding to manage their financial challenges. Additionally, government support through the emergency credit line guarantee scheme has provided an additional boost to credit offtake, contributing significantly to the overall surge in bank lending.
Deposit growth has remained inelastic, typically ranging between 9% and 13%, with current growth at 12.2% as of May 31, 2026, lagging credit growth by more than 500 basis points. According to The Times of India, deposit growth has continued to lag credit expansion, reflecting the challenging environment for deposit mobilisation. For FY26 as a whole, deposits had increased by ₹36.5 lakh crore between March 2025 and March 2026, while credit rose by ₹31.1 lakh crore during the same period.
Banks have responded to the funding challenges by adjusting their balance sheets to meet higher credit demand. As reported by The Times of India, they have slowed investments in government securities, with growth in such holdings dropping to about 2% in January 2026 and recovering modestly to 4.9% by May 31, 2026. This pullback reflects the need to free up liquidity amid weak deposit mobilisation. The current phase reflects a tightening environment where credit growth continues to outpace deposit growth, leaving the system with a credit-deposit ratio of 82.8%.
