Wholesale funding critical as Indian banks face deposit-credit gap

Credit expansion across India's banking sector is increasingly outstripping deposit mobilization, creating a structural funding gap that will require sustained reliance on wholesale and offshore funding sources, according to analysts at Fitch Ratings.

Elaine Koh, senior analyst at the global ratings agency, highlighted the challenge at the Business Standard BFSI Insight Summit 2026, noting that banks and non-banking financial companies (NBFCs) will need to diversify their funding mix to support continued credit growth.

The divergence between credit demand and deposit growth reflects India's robust economic expansion and rising credit appetite among consumers and businesses. However, it presents a liquidity management challenge for financial institutions that have traditionally relied on retail deposit bases.

Wholesale funding—which includes borrowings from financial markets, institutional investors, and the central bank—and offshore funding mechanisms provide alternative channels for institutions to bridge the gap. These sources allow banks and NBFCs to access capital markets and international funding pools when domestic deposits prove insufficient.

The funding dynamics underscore the evolving nature of India's financial system as it grows deeper and more sophisticated, with market-based funding mechanisms playing an increasingly central role alongside traditional deposit mobilization.