RBI Bulletin argues the credit-deposit ratio overstates funding risk
Serguey Asael Shinder2 min readThe Reserve Bank of India released the September 2026 issue of its monthly Bulletin on 25 September, with seven speeches, three articles and current statistics. The lead article, on the state of the economy, notes that renewed tensions in West Asia have again brought rising energy prices and more volatile financial markets. Against that, it reports growth of 7.8% in the first quarter of 2026-27, resilient high-frequency indicators through August, a narrower merchandise trade deficit on strong exports, headline inflation up to 4.8% in August on food, fuel and core components, a system liquidity surplus swollen by FCNR(B) deposit inflows, and foreign exchange reserves at an all-time high.
The second article takes on a number that has worried markets: the credit-deposit ratio. Since 2023-24, bank credit has grown much faster than deposits, pushing the ratio above 80%. The authors argue that the ratio on its own may not be an appropriate gauge of funding vulnerability in a banking system with high credit growth. Their reasoning starts from how money is created: deposits arise when banks lend or invest, so banks need not gather deposits before extending credit, and deposits are not necessarily the binding constraint. Profitability, the movement of deposits between banks and prudential rules then bring credit growth back in line with the economy. The article attributes the high ratio at the end of March 2026 to adjustments on the liability side, including more borrowing, in a system where prudential targets are met.
The third article looks at private corporate investment in 2025-26 and its outlook for 2026-27. As with all Bulletin articles, the RBI states that the views are the authors' and not its own.
What it means
The credit-deposit argument matters because the ratio has been read as a sign that Indian banks were lending beyond their funding. The article reframes it: a high ratio in a growing economy with adequate capital and liquidity is not by itself a warning, and what matters is how the rest of the balance sheet is funded.
The macro picture is the backdrop for the RBI's next policy meeting: strong growth and record reserves on one side, inflation moving up and imported energy costs on the other.