Liquidity with out enhance in credit score progress can result in bubbles: SBI Capital report

The Reserve Financial institution of India’s efforts to inject liquidity can solely be an enabler and never a primary mover in bettering the credit score progress of the Indian banking system, in accordance with a report on banking by SBI Capital.

“RBI has saved the liquidity faucet flowing with a cumulative OMO of over Rs. 5 trillion in 2025. Nonetheless, traditionally, liquidity has boosted deposit greater than credit score progress. Therefore, liquidity can solely be an enabler not prime mover of credit score, and may result in bubbles,” the authors of the report discovered.

To make sure, the lag between credit score and deposit progress have been converging, information within the report discovered. The credit score progress was over 10% in fiscal 2025, and deposit progress dipped to 11% in fiscal 2025, as in opposition to 16.3% within the earlier fiscal.

“The hole between credit score and deposit progress within the Indian banking system has narrowed over the previous few quarters. That is partly as a result of a slight pick-up in deposit progress and in addition as a result of credit score progress has slowed — a results of each demand-side moderation and a few supply-side constraints,” stated Shrikant Chouhan, Head of Analysis at Kotak Securities.

The rise in liquidity doesn’t have a direct affect on credit score stated, Anitha Rangan, Economist at Equirus Securities, Economist at Equiris Securities. “Neither charges nor liquidity can induce credit score progress. Okay, credit score progress truly comes when there’s a demand for credit score. Demand for credit score comes when there’s an underlying progress within the economic system,” Ms. Rangan stated.

The credit score progress won’t occur when nominal GDP progress is lesser than 10%, Ms. Rangan stated, including that for a that means full enhance in credit score progress to take off each private and non-private capital expenditures to take-off.