Reserve Bank of India officials have challenged conventional wisdom about banking funding constraints, arguing that credit creation and deposit creation are simultaneous processes, not bounded by initial deposits. According to the latest RBI Bulletin for September, deposits may not be viewed as a fixed pool of resources that banks must first mobilise before extending loans and investments, but rather are simultaneously created by the very act of lending and investing. The officials noted that deposits are primarily created through three channels — bank credit, investment and foreign capital inflows, and are eroded when deposit holders liquidate their deposits by withdrawing cash or repaying loans. For the banking system balance sheet, including the Reserve Bank, non-deposit sources such as capital, borrowings and net other liabilities also aid in expansion of the liability side. The authors emphasized that credit-deposit (CD) ratio, by itself, may not be an appropriate metric to gauge funding vulnerability of a banking system experiencing high credit growth, requiring a holistic review of overall dynamics. The CD ratio of scheduled commercial banks rose to 82.2% in March this year from 68.6% in September 2021, with the incremental CD ratio having risen to around 114% in May before declining thereafter. As per the RBI report, "While the CD ratio attracts considerable attention, the ratio by itself does not represent the underlying funding situation. During a high CD ratio phase, profitability considerations and/or prudential regulations may restrain credit creation at the margin."
Reserve Bank of India Deputy Governor Shirish Chandra Murmu has outlined five key areas for sustainable growth as the NBFC sector evolves from alternative lenders to specialized financial partners. According to the latest RBI Bulletin for September, NBFC credit now represents 16.7% of nominal GDP, up from 15.9% a year earlier, while it accounts for 27% of credit extended by Scheduled Commercial Banks, compared to 26% previously. Murmu emphasized that "good governance is the foundation of every strong institution" and stressed that boards and senior management must build a culture of sustained compliance and ethics across organizations as the sector scales. He noted that "growth must never come at the cost of underwriting standards" and highlighted the importance of maintaining rigorous stress testing and early-warning systems. The current phase of rising CD ratio coincides with a growing economy along with profitable and a sound banking system, with credit extended by scheduled commercial banks growing faster than deposits since 2022-23, resulting in the high ratio.
Reserve Bank of India Deputy Governor Poonam Gupta has highlighted a significant divergence in India's financial markets, noting that India's bond market has outperformed many other nations in recent years, while equities lag behind. As reported by The Economic Times, this divergence raises questions about how financial markets could evolve as India's economic growth remains resilient. The deputy governor, who was appointed in April last year, attributed the equity market underperformance partly to the relatively more promising "AI-led growth" story in some other economies, which has supported their equity markets. She noted that while the Indian equity market witnessed an exceptional run from June 2022 to September 2024, some other economies are having a better run now, though the strength of the underlying Indian economy could eventually support the equity market. Gupta emphasized that "this is plausibly because of a relatively more promising AI-led story in certain other economies. Eventually, the promise of the underlying real economy would reassert itself. Going by the past experiences, it is only a matter of time before Indian equities look relatively more attractive again."
Reserve Bank of India Deputy Governor Rohit Jain highlighted that India's banking journey with technology has been one of considerable success, marked by a series of institutional innovations that have transformed financial services delivery. As reported by Business Standard, Jain emphasized that the adoption of Core Banking Solutions was a foundational turning point, enabling banks to move beyond branch-centric operations and provide customers with access to accounts and services across locations. This technological foundation created the pathway for internet banking, mobile banking and the subsequent expansion of digital financial services. The deputy governor noted that initiatives such as UPI, Aadhar-based e-KYC, Video-based Customer Identification Process, and ULI offer important lessons in successful technology implementation in the banking sector. Jain's message emphasizes that safety is the highest priority when managing foreign exchange reserves, as reported by The Economic Times, stating that while liquidity and return are also important considerations, they must follow safety in order of importance.
According to Gupta's analysis in the RBI bulletin, the relative strength of India's bond market is driven by the government's fiscal commitment and expectations of sustained high economic growth, which could make fiscal outcomes even better going forward. She pointed to the credibility of monetary policy and declining structural pressures on inflation as additional factors supporting the bond market. The deputy governor noted that "India's bond market is exhibiting notable strength, outpacing its historical performance and standing firm against global trends. The Deputy Governor of the Reserve Bank of India highlighted the promising fiscal commitments that are bolstering market dynamics." This strength is supported by nearly three-fourths of chief economists expecting India to record strong or very strong growth over the next 12 months, as found in a World Economic Forum survey. As reported by The Economic Times, "India's bond market has also performed well in recent years, both compared to its past performance and in comparison with most other countries, the Reserve Bank of India's Deputy Governor Poonam Gupta said."
Murmu outlined five critical areas for sustainable growth in the NBFC and HFC sector, addressing both opportunities and challenges. He emphasized that "strong liquidity risk management is not optional" and warned that recent episodes in some advanced economies serve as reminders of vulnerability to market sentiment shifts and funding concentration. The deputy governor stressed that "securitisation should grow beyond a liquidity tool – into a genuine way to transfer risk and free up capital, with proper skin-in-the-game and transparency rules." He noted that "as credit growth speeds up, so does the risk to asset quality" and called for rigorous stress testing, early-warning systems, and dynamic provisioning, while advocating for AI and machine learning tools to detect early signs of borrower stress. Murmu highlighted that "customer trust is fundamental to sustainable business" and emphasized that "conduct regulation, grievance redressal, and responsible lending remain top priorities." He added that "digital transformation and cyber resilience" must remain priorities, with technology adoption deepening from blockchain in supply chain finance to AI in fraud detection, while maintaining strong cyber security to protect customer data.
According to The Economic Times, India's foreign exchange reserves stand at $780.78 billion as of September 11, representing the highest ever reserves the country has maintained. Jain highlighted that these reserves rank fifth globally, demonstrating the country's strong external financial position. The deputy governor noted that the RBI tracks market variables and parameters closely while keeping an eye out for better opportunities to deploy these substantial reserves effectively. This record level of reserves provides India with significant financial cushion and global investor confidence in the country's external financial stability.
