Indian banking sector closed FY26 on a strong footing, with both credit and deposit growth reaching two-year highs, driven by shifting investor preferences and evolving borrowing trends amid volatile financial markets.

Key Highlights

• India banking system sees credit and deposit growth hit two-year highs in FY26.
• Market volatility drives investors to deposits while corporates shift borrowing towards bank loans.

Bank deposits grew 13.47% year-on-year, the fastest pace since May 2024, as investors increasingly moved funds into safer instruments. Market volatility- triggered by corrections in equities, fluctuations in gold and silver prices, and underperformance in some mutual fund categories- prompted a shift towards bank deposits and bonds.

This “flight to safety” pushed total deposits to a record Rs 262 lakh crore as of March 31, 2026, strengthening liquidity across the banking system.

Credit growth also picked up momentum, rising 16.08% to Rs 213 lakh crore, marking its strongest pace since June 2024.

The growth was largely driven by corporates turning to bank loans instead of capital markets. Rising interest rates and a weaker rupee made overseas borrowing costlier, prompting companies to delay or reduce bond issuances and rely more on banks for funding.

Retail lending segments, particularly gold loans and vehicle loans, also contributed significantly to overall credit expansion during the year.

Also Read: HDFC Bank Deposits Rise 14.4% to Rs 31.06 Lakh Crore

Shift in Borrowing and Investment Trends

The evolving financial environment has led to a structural shift in both borrowing and investment behaviour. While demand for auto loans moderated slightly towards the end of the fiscal year, overall lending remained significantly higher compared to the previous year.

The credit-deposit (CD) ratio eased to 81.44 from a recent peak of 83.04, primarily due to faster deposit growth in the final weeks of FY26.

 Sanjai Agarwal, Senior Director at CareEdge Ratings said, “The twin surge is a direct outcome of market dynamics. Higher capital-market rates and currency pressures have pushed borrowers towards banks, while market corrections have driven investors into deposits, creating a rare moment where both credit and deposit growth are simultaneously elevated.”