RBI Study: Banks Must Balance Credit Expansion with Deposit Growth

In their most recent State of the Economy Bulletin, the Reserve Bank of India (RBI) warned that pressure on net interest margin (NIM) may soon compel commercial banks to match loan growth more closely with deposit growth.

Since deposits have grown faster than loans for over a year, the report emphasised the disparity between the two financial measures. As a result of this trend, regulators are pressuring banks to increase their resource mobilisation efforts. The most recent statistics show that, as of July 26, bank credit growth was 13.7% annually, while deposit growth was slower at 10.6%.

According to RBI experts, “In the quarter-ended June 2024, banks have been impelled to increase mobilisation of funds through certificates of deposit and through high-value savings accounts and fixed deposits. Going forward, the low share of low-cost current and saving deposits in total deposits may curb domestic fundraising efforts of banks through high-cost funding options due to a likely squeeze on banks’ net margins.”

According to a report, ‘’This may also force banks to align loan growth more closely with deposit growth and normalise incremental credit-deposit ratios. In part, this behavioural shift may be induced by signs of stress in the unsecured loan segments, especially in personal loans and credit card portfolios.’’

According to the bulletin, bank certificate of deposit (CD) issuances increased significantly in 2024–25 (until August 9), reaching ~3.49 trillion as opposed to ~1.89 trillion during the same period in the previous year. The slower growth in deposits than in credit is thought to be the cause of this surge in CD issuance, forcing banks to look for other funding sources.