SBI Research has highlighted that India's banking system and credit markets are signaling a stronger start to FY27, with buoyant capital flows, higher deposit growth, and a pickup in both commercial paper and bank credit as early signs that economic growth may have surprised on the upside in Q1FY27.
Deposit Growth Hits 29-Year High
For the fortnight ended 30 June 2026, overall deposits surged by approximately Rs 7 lakh crore, marking the "third highest fortnightly growth in 29 years," according to SBI Research. After netting out the quarter-end effect of Rs 3.5-4 lakh crore, the surge reflects stronger capital inflows. SBI Research estimates that the magnitude of overall capital flows, stripping out trend growth, could be $15 billion. This is attributed partly to FCNR(B), ECB, and OFCB flows, with India receiving "$7 billion FII inflows since the measures announced by the Government to bring foreign inflows and boost the rupee." Cumulative Debt FAR inflows stand at $2.7 billion, while RBI's foreign currency assets rose by $4.4 billion during the fortnight to $545.6 billion.
Credit Activity Accelerates
Credit activity has also accelerated. CP issuances in Q1FY27 totaled Rs 5.38 lakh crore, up 19% year-on-year, with June at a 55-month high of Rs 2.55 lakh crore. Incremental bank credit rose to Rs 5.6 lakh crore in Q1FY27, compared to Rs 2.4 lakh crore a year ago. SBI Research observes that "Bank Credit and CP Issuances moving in the same direction - indicating economic resilience." Top CP-issuing sectors such as power, real estate, and steel also showed higher bank credit growth, and together these sectors account for "Rs 69% of the new projects announcement in Q1."
Crude Oil Tailwind and Rupee Outlook
The report flags softer crude prices as a key tailwind. "Average crude oil price for Indian basket is now expected at $80/bbl which will lead to savings of $30 to $35 bn in oil import bill against our previous estimate when oil price crossed $130/bbl." SBI Research also notes that the rupee outlook "remains positive" despite a recent 0.4% depreciation amid geopolitical tensions.
Yield Dynamics and Funding Conditions
On rates, long-tenor G-sec yields rallied faster than corporate bonds in May-June on foreign inflows, while 3-year AAA saw better demand. The spread between CP weighted average yield and bank lending rates has narrowed to 115 bps in May 2026 from 169 bps in March. With liquidity set to turn comfortable after the deposit surge and oil savings in view, SBI Research expects funding conditions to ease further, supporting both corporate borrowing and project execution in the coming months.
