Banks face deposit crunch as credit growth accelerates, EAC warns

The widening gap between bank credit growth and deposit mobilisation has emerged as a significant challenge for India's financial system, with the Economic Advisory Council to the Prime Minister flagging the issue as banks struggle to balance expanding loan portfolios with slower deposit inflows. The credit-deposit spread reached 5 per cent in July, reflecting a structural imbalance that threatens to constrain future lending capacity if deposit mobilisation does not accelerate. To bridge the funding shortfall, banks have increasingly turned to non-traditional sources of liquidity, including certificates of deposit, money market instruments, and both domestic and overseas bond issuances. These alternative channels, while providing temporary relief, come at higher costs and may not offer the stability and consistency that traditional retail deposits provide. The EAC's assessment underscores the urgency for banks to intensify deposit mobilisation efforts through competitive interest rates and improved customer outreach, even as the banking sector continues to experience strong credit demand driven by economic growth across retail, corporate and infrastructure segments.