SBI Research identifies 3 structural changes in bank deposits amid persistent credit-deposit gap

Geopolitical risks and external supply-side shocks have created a persistent wedge between bank deposit and credit growth since FY23, according to an SBI Research report released on Monday.

The report said scheduled commercial banks' credit grew 18.6% for the fortnight ended June 30, 2026, while deposit growth improved to 13.3%.

However, since FY23, credit growth has consistently surpassed deposit growth, widening the gap to 5.3 percentage points in June 2026.

"This phenomenon calls for an explanation by looking at credit and deposit dynamics more closely at granular and system balance sheet level post COVID," the report said.

How are geopolitical risks affecting banks?

According to SBI Research, an S-VAR model shows that supply-side shocks are transmitted asymmetrically across banking aggregates, with bank credit growth responding more strongly than bank deposit growth.

"Such supply shock invariably creates liquidity gaps through wedge between deposit and credit growth and indicates one of the many dimensions of geopolitical risk to banking system in India," it said.

The report said crude oil shocks are the dominant source of such variation in credit, while food inflation becomes increasingly important for deposits over longer horizons.

Will the deposit-credit gap narrow?

It expects the wedge between deposit and credit growth to persist if geopolitical risks and external supply shocks continue, although deposit growth is likely to pick up with the onset of FCNR(B) deposits.

"FCNR(B) deposit mobilization could result in some shift towards the 5-year bucket," it said.

According to the report, around $13-14 billion has come through the FCNR(B) window so far and aggregate deposits are estimated to grow 14.5-15% in FY27.

How have banking trends changed since COVID?

The report identified three structural changes in bank deposits after COVID: a shift in deposit mobilisation towards semi-urban and rural areas; increasing preference for term deposits over savings accounts; and changes in the ownership structure of deposits as household savings shift towards market-related instruments.

On the credit side, it said the growth has remained persistent since FY23.

Following RBI's regulatory action in 2024, the share of personal loans has declined and credit supply has "spilled over" to industry, finance and other sectors. It also said working capital loans such as cash credit, overdraft, demand loans and export credit have registered relatively faster growth than overall credit and term loans since 2022.

The report also said Indian banks are "currently in a goldilocks period", with strong capital adequacy and low NPAs providing a cushion for credit expansion.

"Credit growth is expected to remain strong, supported by consumption demand and capex momentum; banks to prioritise balance sheet discipline," it said.