Will Credit Growth Reach 11-12% in FY26 Due to Bank Deposit Increases?
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Synopsis
As the banking sector braces for FY26, a report highlights that credit growth may reach 11-12% due to sufficient bank deposit growth and enhanced liquidity. What does this mean for the economy? Dive into the details and understand the implications for consumers and banks alike.
Key Takeaways
- Credit growth is projected at 11-12% in FY26.
- Bank deposit growth is expected to remain adequate.
- The RBI has implemented measures to improve liquidity.
- Household deposits are decreasing in percentage share.
- Banks may need to diversify funding sources to mitigate risks.
New Delhi, Oct 3 (IANS) Bank deposit growth is projected to be sufficient in FY26, enabling credit growth of 11–12 percent, supported by improved liquidity stemming from regulatory interventions, according to a report released on Friday.
The report by the ratings agency Crisil highlighted that a decline in household engagement in term deposits and a drop in the current account and savings account (CASA) ratio signify structural shifts that could raise funding costs over the medium to long term.
Since April 2025, the Reserve Bank of India (RBI) has been injecting liquidity, alleviating conditions from a previously stringent liquidity environment.
A 100-basis point reduction in the cash reserve ratio is channeling around Rs 2.5 lakh crore into the banking system, while updated liquidity coverage ratio regulations may free up an additional Rs 1.9 lakh crore, the report indicated.
As retail depositors increasingly shift towards alternative investment options, the proportion of household incremental deposits has decreased to 52 percent in fiscal 2025, a significant drop from 67 percent in fiscal 2020.
“On an outstanding basis, the share of household deposits in total bank deposits fell from 64 percent to 60 percent between fiscals 2020 and 2025, with non-financial corporations stepping in with a 4 percent increase,” stated Subha Sri Narayanan, Director at Crisil Ratings.
In times of tight liquidity, this trend may lead to quicker deposit withdrawals and heightened funding costs for certain banks. Looking forward, as alternative investments continue to rise in popularity, a further decline in the share of household deposits is anticipated, she added.
Within CASA deposits, interestingly, the share of current deposits has remained relatively stable, whereas the share of savings deposits has experienced a downturn.
Given that deposits constitute over 90 percent of their total borrowings, individual banks might pursue a diversification of funding sources to mitigate potential risks, as suggested by the firm.
Point of View
Bolstered by adequate bank deposit growth and regulatory liquidity measures, reflects a complex landscape for the banking sector. As household engagement in traditional deposit avenues declines, banks must adapt to evolving consumer behaviors while ensuring stability in funding sources. The nation’s economic health hinges on how effectively these dynamics are managed.
NationPress
03/10/2025
Frequently Asked Questions
What is the expected credit growth for FY26?
The expected credit growth for FY26 is between 11-12%, driven by sufficient bank deposit growth and regulatory liquidity measures.
How is the RBI contributing to liquidity?
The Reserve Bank of India has been injecting liquidity since April 2025, including a significant reduction in the cash reserve ratio, which has improved the liquidity environment.
What changes are occurring in household deposits?
Household incremental deposits have declined to 52% in fiscal 2025 from 67% in fiscal 2020, indicating a shift towards alternative investment avenues.
