As of August 31, bank credit growth has risen to 19 per cent year-on-year, signalling an upward trend in lending activities across the banking sector. This increase coincides with a corresponding rise in deposit growth, which has reached 18 per cent, according to a report by Jefferies in its India Financial Daily.

The data indicate robust loan growth, at 16 per cent when considering both loans and investments. Notably, the credit-to-deposit ratio is around 80 per cent, and the investment-to-deposit ratio stands at approximately 26 per cent. These statistics suggest that banks are effectively utilising deposits to extend credit, thus maintaining a healthy balance within the financial system.

Recent Developments in Banking

The report underlines a notable surge in bank credit in recent months, particularly highlighting the consistent performance of private banks, which have retained their market share. However, Jefferies suggests that while credit growth is robust, it may begin to moderate in the near future.

Tracing the trends over the past few years, Jefferies notes that credit growth was subdued throughout much of 2024 and into early 2025. A recovery phase started mid-2025, culminating in the current rate of 19 per cent by August 2026. As bank lending becomes more aggressive, deposit growth has also gained traction, narrowing the gap between loans and deposits.

This shift underscores the effectiveness of deposit mobilisation efforts, which have eased some pressure from the expanding credit sector. The recent data paints a picture of a stabilising banking landscape, positioning it favourably for future lending activities.

Liquidity and Funding Conditions

Jefferies’ report also points to improved liquidity conditions within the banking system. As of September 21, surplus liquidity in the banking sector was approximately Rs 5 trillion, an indicator of the resources available for lending and investment.

The strengthening of credit trends is occurring alongside notable changes in the broader financial environment. This includes increased mobilisation of foreign-currency deposits and shifts in prevailing funding conditions, which may further influence bank lending and investment strategies.

Despite the encouraging data, Jefferies cautions that the rate of credit growth may experience slight moderation. The interplay between deposit growth, credit demand, and system liquidity will remain crucial metrics to observe, as these factors will play a significant role in shaping banks’ balance sheets in the forthcoming months.

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