Bank Deposit Costs Rise as Credit Growth Outpaces Deposits

The Story in Brief

Bank credit grew 17.7% year on year to Rs 217.3 lakh crore by July 15, 2026, while deposits rose 12.7% to Rs 262.8 lakh crore, leaving a 5 percentage point gap. CareEdge Ratings said this has pushed banks to draw down excess SLR holdings and seek deposits at higher rates. Fresh lending-deposit spreads for scheduled commercial banks narrowed 13 basis points month on month to 2.54% in June, as fresh term deposit rates rose faster than lending rates.

Private banks faced sharper pressure, with their spreads narrowing 25 basis points to 2.91%, compared with 1.63% for public sector banks. Banking system surplus liquidity improved to Rs 2.5 lakh crore in July. CareEdge expects lending and deposit rates to remain in a narrow range, with deposit rates staying firm until deposit growth catches up.

The Indian Opinion

The lazy narrative is that stronger loan growth automatically means stronger banks. The numbers show the cost: banks are competing harder for deposits, especially private lenders, and spreads are narrowing. The opposite claim, that liquidity improvement will quickly make deposits cheaper, is also premature. FCNR(B) inflows and market borrowing may ease pressure, but deposit growth still trails credit growth by 5 percentage points. The next test is whether that gap narrows without another rise in deposit rates.

Sources (2): bfsi.economictimes.indiatimes.com, bfsi.economictimes.indiatimes.com (2)

This story was synthesised by AI from the 2 sources linked above.

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