The Reserve Bank of India's latest Bulletin has clarified that a high credit-deposit (CD) ratio does not necessarily signal vulnerability in the banking system, even when credit growth is robust.
Since fiscal year 2023, credit growth has significantly outpaced deposit growth, pushing the CD ratio above 80 percent, which caused some concerns about credit growth sustainability.
The RBI explained that in the modern monetary system, deposits are created alongside lending and investing activities, so banks do not need to first mobilise deposits before extending credit.
It added that profitability considerations, inter-bank deposit movements, and prudential regulations typically ensure that credit growth aligns with economic conditions over time.
Banks decide to lend based on risk-adjusted returns and profitability within regulatory limits, continuing credit expansion where lending remains attractive.
The Bulletin emphasised that relying solely on the CD ratio is inadequate for assessing the funding vulnerability of a banking system undergoing strong credit growth.
The recent rise in India's CD ratio coincides with a growing economy and a sound banking system that meets prudential targets at the system level.
high CD ratio as of the end of March 2026 reflects liability-side changes, including increased borrowings at lower costs and higher capital buffers.
Asset composition adjustments, such as redeploying reserves and balances, also helped sustain credit flow.
Separately, the RBI noted that private corporate investment activities remain a key driver of economic growth.
In 2025-26, the total cost and number of projects sanctioned by banks and financial institutions rose compared to the previous year, signalling enhanced private sector investment.
The infrastructure sector, particularly the power segment, continued to attract the largest share of planned capital expenditure.
Phasing plans indicate that aggregate capital expenditure intended by the private corporate sector in 2025-26 increased from the prior year's plans, with envisaged capex estimated at Rs 3.2 lakh crore in 2026-27, demonstrating sustained investment momentum.
