Banks Turn To Market Borrowings As Credit-Deposit Ratio Hits High

Banks are lending a higher share of the deposits they mobilise. This has pushed the credit-deposit (CD) ratio and has forced lenders to rely more on short-term market borrowings to fund loan growth. According to reports, the CD ratio rose to 82.5% in the fortnight ended 15 February 2026.

The increase came as credit growth continued to outpace deposit mobilisation by 281 basis points (bps). Note that one bps is equal to a hundredth of a percentage point. To make up for the shortfall, banks resorted to short-term borrowings. They issued certificates of deposit (COD) valued at ₹1.34 lakh crore.

Loan Growth Outpaces Deposits

Data showed that credit expansion remained strong even as deposits saw a decline during the period. Total bank credit reached ₹204.3 lakh crore, registering 13.7% year-on-year growth. In the same period last year, credit had expanded at a slower pace of 11.3%.

Deposit growth remained more modest. Aggregate deposits stood at ₹247.7 lakh crore. It grew at 10.9% year-on-year, compared with 10.3% growth in the corresponding period a year earlier.

On a sequential basis, deposits actually contracted in the latest fortnight. Deposits fell by ₹1.08 lakh crores. It was a sharper decline than the ₹40,000 crore fall recorded in the previous fortnight. The divergence between faster credit expansion and slower deposit mobilisation pushed the CD ratio to an all-time high.

Liquidity Conditions Remain Comfortable

Despite the decline in deposits during the fortnight, analysts said the data does not show a stress situation in the banking system. System liquidity remained in surplus.

Banking system liquidity stood at around a ₹3.1 lakh crore surplus as of 15 February 2026. It got support through open market operations (OMOs) by the Reserve Bank of India (RBI).

OMOs involve the buying of government securities by the central bank to inject durable liquidity. The surplus liquidity has helped ensure that funding conditions remain stable even as banks increase reliance on market instruments.

Deposit Competition Intensifies

Of late, the struggle to attract deposits has intensified across the banking system. This has reshaped how banks are pricing their liabilities. Households have increasingly diversified their savings into other financial products.

Mutual funds, insurance products, and other financial instruments have drawn a larger share of household savings in recent years. As a result, banks have had to step up deposit mobilisation efforts. In the process, they have offered higher interest rates to attract funds.

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Impact On Lending And Sector Dynamics

For banks, the data reflects strong credit demand. However, it also highlights the growing pressure to mobilise stable deposits. Continued reliance on short-term borrowings can help them support loan growth in the near term. However, it also raises funding costs and increases sensitivity to money market conditions.

Source:

The Economic Times