Credit expanded 17.7% year-on-year in the fortnight ended May 31, 2026 — the strongest growth recorded so far in FY27 and the highest since June 2024.
Outstanding bank credit rose by Rs 1.5 lakh crore between March 31 and May 31, 2026, marking a 0.7% increase in the first two months of the financial year, the report said. Total outstanding credit reached Rs 215.2 lakh crore by the end of May.
Crude prices drive the boom
Bankers told ToI that part of the increase in credit demand came from oil marketing companies facing lower realisations after crude oil prices surged. They also cited government support through the emergency credit line guarantee scheme as a factor boosting credit offtake.
While lending picked up sharply, deposits moved in the opposite direction. Aggregate bank deposits fell by Rs 2.3 lakh crore, or 0.9%, from March-end levels, taking the total deposit base to Rs 260 lakh crore as of May 31.
The divergence between credit and deposit growth widened the funding gap in the banking system. The report said the difference between rising loans and shrinking deposits reached around Rs 3.8 lakh crore during the first two months of FY27.
Deposit growth continued to lag credit expansion. As of May 31, deposits were growing at 12.2%, more than five percentage points slower than credit growth.The mismatch has kept the banking system’s credit-deposit ratio above 80% since October 2025. The ratio stood at 82.8% in May 2026 after peaking at more than 83% at the end of March, reflecting continued pressure on banks to fund robust loan demand amid weaker deposit mobilisation.
To support lending, banks have adjusted their balance sheets by slowing investments in government securities, ToI reported. Growth in such holdings dropped to around 2% in January 2026 before recovering modestly to 4.9% by May-end, as lenders sought to free up liquidity.
The current trend shows a tightening banking environment in which loan growth continues to outpace deposit mobilisation, leaving banks with a higher credit-deposit ratio and a widening funding gap.