RBI Bulletin: High credit-deposit ratio no sign of bank funding risk
Synopsis
The RBI Bulletin has pushed back on a widely held concern: India's credit-deposit ratio topping 80% is not a red flag for bank funding risk. In the modern monetary system, deposits and credit expand together — and with private-sector capex estimated at ₹3.2 lakh crore in 2026-27, the data suggests economic momentum, not fragility.
Key Takeaways
The RBI Bulletin concludes that a high credit-deposit (CD) ratio is not, by itself, an indicator of banking sector funding vulnerability.
India's CD ratio has been above 80% since FY23 , driven by credit growth outpacing deposit growth.
The elevated CD ratio at end-March 2026 reflects higher borrowings at lower cost and increased capital, not structural weakness.
Private corporate sector investment activity rose in 2025-26 , with infrastructure and the Power sector attracting the largest share.
Envisaged private-sector capex is estimated at ₹3.2 lakh crore in 2026-27 , indicating sustained investment momentum.
A high credit-deposit (CD) ratio does not, by itself, signal funding vulnerability in a banking system experiencing strong credit growth, the latest Reserve Bank of India (RBI) Bulletin has concluded. The finding comes as India's CD ratio has climbed above 80% since FY23, raising questions about the sustainability of the current credit expansion.
Why the CD Ratio Alone Is a Poor Risk Gauge
The RBI Bulletin argues that in the modern monetary framework, deposits are created simultaneously when banks lend or invest — meaning banks do not necessarily need to mobilise liabilities such as deposits before extending credit. As a result, deposits may not represent a binding constraint on credit creation.
'The finding of this study further indicates that CD ratio, by itself, may not be an appropriate metric to gauge funding vulnerability of a banking system that is experiencing high credit growth,' the Bulletin's authors noted.
The authors added that profitability considerations, inter-bank mobility of deposits, and prudential regulation ultimately converge credit growth in line with underlying economic conditions. Where lending offers a better risk-adjusted return than alternative uses of funds, banks continue to expand credit.
What Is Driving India's Elevated CD Ratio
The RBI Bulletin points out that the recent rise in India's CD ratio also coincides with a growing economy and a sound banking system where prudential targets are adequately met at the system level. The high CD ratio as at end-March 2026 was driven by liability-side adjustments — including higher borrowings at lower costs than earlier periods and higher capital levels. Changes in the composition of assets, achieved by redeploying reserves and other balances, also supported credit flow, according to the Bulletin.
Private Corporate Investment on the Rise
A separate article in the same RBI Bulletin highlights that investment activity by the private corporate sector is playing a significant role in driving economic growth. Both the total cost of projects and the number of projects sanctioned by banks and financial institutions increased during 2025-26 compared to the previous year, signalling improving private-sector investment momentum.
The infrastructure sector continued to attract the largest share of envisaged capital investment, led by the Power sector. Phasing plans indicate that aggregate capital expenditure intended by the private corporate sector in 2025-26 rose compared to planned capex in the prior year.
'The phasing profile of the pipeline projects based on all channels of financing taken together suggests that the envisaged capex is estimated at ₹3.2 lakh crore in 2026-27, indicating sustained momentum in private investment,' the authors noted.
Implications for Depositors and the Banking Sector
The clarification from the RBI is significant for market participants who have flagged the widening gap between credit growth and deposit growth as a potential systemic risk. By contextualising the CD ratio within a broader monetary and macroeconomic framework, the Bulletin seeks to reassure that the metric's elevation reflects economic dynamism rather than structural fragility. Analysts and lenders alike will now watch whether the RBI translates this analytical stance into regulatory guidance on liability management.
Point of View
But it sidesteps the distributional question: while the system-level prudential targets may be met, individual banks — particularly smaller private and cooperative lenders — can face genuine deposit pressure even when aggregate numbers look healthy. The bulletin's emphasis on profitability-driven credit allocation also implicitly acknowledges that credit flows toward return, not necessarily toward priority or underserved sectors. The ₹3.2 lakh crore private capex estimate for 2026-27 is a stronger data point, but it depends on project-phasing assumptions that have historically slipped. The more important signal the RBI should now send is how it intends to operationalise this analytical view — whether through revised guidance on liquidity coverage or a formal review of CD-ratio benchmarks used by supervisors.
NationPress
26 Sept 2026
Frequently Asked Questions
What does the RBI Bulletin say about the high credit-deposit ratio?
The RBI Bulletin states that a high credit-deposit (CD) ratio does not, by itself, indicate funding vulnerability in a banking system experiencing strong credit growth. In the modern monetary system, deposits are created simultaneously with lending, so deposits are not a binding constraint on credit creation.
Why has India's credit-deposit ratio risen above 80%?
Since FY23, bank credit growth has significantly outpaced deposit growth, pushing the CD ratio above 80%. The RBI Bulletin attributes the elevated ratio at end-March 2026 to liability-side adjustments such as higher borrowings at lower costs, higher capital, and redeployment of reserves — not to any systemic funding risk.
What does the RBI Bulletin say about private corporate investment?
A separate article in the RBI Bulletin notes that both the total cost and number of projects sanctioned by banks and financial institutions increased in 2025-26 compared to the previous year. Envisaged private-sector capital expenditure is estimated at ₹3.2 lakh crore in 2026-27, indicating sustained investment momentum.
Which sector is attracting the most private investment, according to the RBI?
The infrastructure sector is attracting the largest share of envisaged capital investment, with the Power sector leading within infrastructure, according to the RBI Bulletin's analysis of 2025-26 project data.
Should depositors or investors be worried about the high CD ratio?
According to the RBI Bulletin, the high CD ratio coincides with a growing economy and a sound banking system where prudential targets are adequately satisfied at the system level. The RBI's position is that the metric, viewed in isolation, is not an appropriate gauge of funding vulnerability under current conditions.
