Indian Banks Face Liquidity Pressure as Credit Growth Outpaces Deposits

Banks in India are facing liquidity pressures as credit growth outpaces deposit growth, leading to elevated credit-deposit ratios and shrinking liquidity coverage ratios (LCR). Despite abundant system-wide liquidity, banks struggle to mobilize retail deposits, increasingly relying on certificate of deposit (CD) borrowings to fund loan demand. For example, State Bank of India saw credit grow 15% in Q3FY26 against 9% deposit growth, causing its LCR to decline. Experts note that while banks hold surplus cash via market operations, the lack of stable deposits limits lendable resources.