India banking sector sees record credit growth amid widening deposit gap

India's banking sector is experiencing a significant divergence between credit growth and deposit mobilization. According to a report by CareEdge Ratings, bank credit growth reached an eight-quarter high of 16.5 per cent in the first quarter of FY27, while deposits grew at a much slower rate of 11.3 per cent. This widening gap has pushed the system’s loan-to-deposit ratio (LDR) to a record 83.3 per cent, indicating underlying funding pressures rather than temporary seasonal effects.

In contrast to these liquidity concerns, SBI Research has highlighted the potential benefits of the Foreign Currency Non-Resident (Bank) or FCNR(B) deposit scheme. The scheme mobilized approximately $127 billion in less than three months. SBI Research estimates that these funds could support nearly ₹25 lakh crore of additional bank credit and generate a notional profit of approximately ₹5 trillion for banks over the next five years.

The report further suggests that the FCNR(B) scheme could add roughly ₹50,000 crore to the Reserve Bank of India’s balance sheet. SBI Research refuted claims that the scheme would result in massive losses, arguing that such estimates incorrectly double-count foreign exchange exposure that has already been hedged through special USD-INR swap facilities.