India's Banking Landscape: Deposits Lag Behind Surging Credit Demand
Recent data for December 2025 highlights a significant trend in India's financial system: while bank depositors remain the primary source of credit to the commercial sector, their relative contribution is steadily declining. This shift occurs as credit growth consistently outpaces deposit mobilisation, creating a widening gap that points to deeper structural changes.
Key Figures Reveal a Growing Imbalance
As of December 2025, total outstanding credit to the commercial sector—encompassing both bank and non-bank sources—rose to an impressive Rs 297.9 lakh crore. In contrast, bank deposits stood at Rs 249 lakh crore, sufficient to fund only about 83% of the total credit outstanding. This marks a notable decline from December 2024, when bank deposits amounted to Rs 220.6 lakh crore against total credit of Rs 259.01 lakh crore, covering approximately 85% of credit demand.
The data clearly indicates a widening gap between credit expansion and deposit growth within the banking system. This trend underscores a fundamental shift in India's credit landscape, where banks, while remaining central to financing the commercial sector, are finding their deposit base increasingly inadequate to meet the surging demand for credit.
Structural Shift Toward Non-Bank Financing
The growing reliance on non-banking financial companies (NBFCs), bond markets, and foreign borrowings reflects both the deepening of India's financial markets and mounting pressure on bank balance sheets. As credit demand continues to surge, these alternative channels are playing an increasingly vital role.
The first nine months of the 2025-26 fiscal year witnessed a sharp acceleration in credit flow to the commercial sector. While banks continue to anchor the system, the pace of credit creation has increasingly depended on non-bank channels. This diversification signals a maturing financial ecosystem but also highlights the strains on traditional banking models.
Bank Credit Remains Dominant but Slows in Relative Terms
Non-food bank credit remains the single largest source of incremental funding. Between December 2024 and December 2025, bank credit expanded by Rs 25.5 lakh crore, accounting for 65.5% of the total increase in commercial sector credit. Outstanding non-food bank credit stood at Rs 202.3 lakh crore at the end of December 2025, reflecting a year-on-year growth of 14.4%.
However, this growth, while robust, is not keeping pace with the overall expansion of credit, leading to the declining share of deposits in funding. The data suggests that as India's economy grows and credit demand intensifies, the banking sector must adapt to a new reality where traditional deposit-based funding is no longer sufficient.
This evolving dynamic poses both challenges and opportunities for policymakers, banks, and investors as they navigate a financial landscape in transition.
