The structural credit-deposit (C-D) gap in the Indian banking system is projected to persist due to shifting household savings patterns and heightened corporate demand for working capital, according to a recent note by SBI Research.
Scheduled commercial banks saw credit grow by 18.6% for the fortnight ended June 30, 2026, while deposits lagged at 13.3%—widening the growth gap to 5.3%.
Key Drivers of the Widening Gap
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Shift to Working Capital: Post-2022, corporate loan demand has shifted heavily toward short-term working capital (cash credit, overdrafts, demand loans, and export credit) rather than long-term term loans. This trend is driven by businesses shielding themselves against continuous geopolitical and supply-side shocks (e.g., West Asia conflict, fluctuating oil prices).
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Asymmetric Shocks: SBI’s 10-year data analysis reveals that supply-side shocks impact credit much faster than deposits. The combined contribution of crude oil and food inflation shocks to credit variance escalates from 23.5% in the first quarter to 31.2% by the tenth quarter, creating an automatic liquidity wedge.
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Retail Loan Deceleration: Retail credit is slowing down as the share of long-term housing loans in overall retail books declines. Under the new tax regime, individuals are repaying loans faster, while NBFCs are aggressively capturing market share in home loans.
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Structural Deposit Migration: Traditional metro deposit markets are reaching saturation. Incremental deposit growth is structurally moving toward semi-urban and rural areas, fueled by women-centric economic schemes. Simultaneously, household savings are shifting away from traditional bank deposits into alternative asset classes, leaving banks reliant on financial and non-financial corporate term deposits.
The Near-Term Outlook
Despite the liquidity friction, SBI Research indicates that Indian banks are firmly in a “Goldilocks period.” The sector remains highly resilient due to robust Capital to Risk-Weighted Assets Ratios (CRAR) and low Non-Performing Assets (NPAs).
To manage the near-term structural gap, banks are temporarily turning to alternative liquidity buffers, specifically mobilizing short-term foreign currency resources via FCNR(B) deposits, with a major concentration expected in the 1-to-3 and 5-year buckets.
