Banking – India’s Credit and Deposit Growth Signals Strong Economic Momentum in FY27
Banking – India’s banking sector has entered FY27 on a positive note, with stronger capital inflows, healthy deposit growth, and improving credit demand pointing to a better-than-expected economic performance during the first quarter of the financial year.
India’s financial system has shown encouraging signs at the beginning of FY27, according to a fresh assessment by SBI Research. The report indicates that stronger liquidity, expanding bank deposits, and increased borrowing activity across financial markets suggest the country’s economy may have performed better than earlier estimates in the first quarter. The study also expects this positive trend to continue over the coming months, supported by favourable domestic and global conditions.
Lower Oil Prices Offer Additional Support
One of the major positives highlighted in the report is the decline in crude oil prices. SBI Research expects the average price of the Indian crude basket to remain around $80 per barrel. Compared with earlier projections made when oil prices had crossed $130 per barrel, this could reduce India’s annual oil import bill by nearly $30 billion to $35 billion. The report also maintains a positive outlook for the Indian rupee despite a recent depreciation of around 0.4%, noting that temporary geopolitical developments have had only a limited impact on the currency.
Deposit Growth Reflects Strong Capital Inflows
Bank deposits witnessed a remarkable rise during the fortnight ending June 30, 2026. According to SBI Research, total deposits increased by nearly Rs 7 lakh crore, making it the third-highest fortnightly increase recorded in the past 29 years. Even after adjusting for quarter-end accounting effects estimated at Rs 3.5 lakh crore to Rs 4 lakh crore, the report suggests that a significant portion of the increase was driven by fresh capital entering the country.
The research estimates that net capital inflows during this period may have reached around $15 billion. These inflows were supported by foreign currency non-resident bank deposits, external commercial borrowings, and overseas foreign currency borrowings. Additionally, India has received approximately $7 billion in foreign institutional investor inflows following government measures aimed at attracting overseas investments and strengthening the rupee. Debt investments under the Fully Accessible Route also climbed to $2.7 billion, while the Reserve Bank of India’s foreign currency assets increased by $4.4 billion to reach $545.6 billion.
Credit Demand Gains Momentum Across Key Sectors
Borrowing activity also strengthened during the first quarter of FY27. Commercial paper issuances reached Rs 5.38 lakh crore, representing a 19% increase compared with the same period last year. June alone recorded issuances worth Rs 2.55 lakh crore, the highest monthly level seen in 55 months.
At the same time, incremental bank credit rose sharply to Rs 5.6 lakh crore, more than doubling from Rs 2.4 lakh crore recorded during the corresponding period of the previous financial year. SBI Research observed that the simultaneous rise in bank lending and commercial paper issuances reflects resilient economic activity rather than financial stress. Sectors such as power, real estate, and steel registered stronger credit growth and together accounted for nearly 69% of all new project announcements during the quarter.
Easier Funding Conditions Expected Ahead
The report also noted favourable developments in the bond market. Long-term government securities outperformed corporate bonds during May and June, largely due to stronger foreign investment. Demand for three-year AAA-rated corporate bonds also improved during the period. Meanwhile, the gap between commercial paper yields and bank lending rates narrowed significantly, falling to 115 basis points in May 2026 from 169 basis points in March.
Looking ahead, SBI Research believes the combination of improved liquidity, robust deposit growth, lower oil import costs, and healthy foreign capital inflows will create more comfortable funding conditions. This environment is expected to support corporate borrowing, accelerate project execution, and strengthen India’s overall economic growth trajectory in the months ahead.