The wedge between deposit growth and credit growth may continue if the geopolitical risk and external supply shocks persists, cautioned SBI’s economic research department (ERD).However, deposit growth will pick up via fresh FCNR(B) deposits and could shift the dynamics much.The ERD’s researchers said a Structural Vector Autoregression (S-VAR) model reveals that such supply-side shocks are transmitted asymmetrically across banking aggregates, with bank credit growth responding more strongly than bank deposits growth.Such supply shock invariably creates liquidity gaps through wedge between deposit and credit growth and indicates one of the many dimensions of geopolitical risk to banking system in India, though the recent FCNR(B) deposit mobilization will result in a pickup in deposit growth, they added.The policy conclusions that emerge form ERD’s analysis are that liquidity management of banks requires different strategy when supply shocks are accounted and food inflation has significant impact on deposit mobilization, though impact of food inflation arising out of deficient rains has been contained.Further, long term energy decoupling is critical for stable growth and sustained capital formation and India is doing relatively well on this front.The ERD’s report noted that banking system has experienced persistent and rapid expansion in bank credit with a growth of 18.6 per cent for the fortnight ended 30 June 2026.Concomitantly, the deposit growth has also improved to 13.3%, closely aligning with long term trends in deposit growth, tracking the nominal GDP growth.Since FY23, credit growth has consistently surpassed the deposits growth, which has resulted in gap widening to 5.3 per cent in June 2026, the report said.“Crude oil shocks are the dominant source of such variation in credit, while food inflation becomes increasingly importantfor deposits over longer horizons,” said Soumya Kanti Ghosh, Group Chief Economic Advisor, SBI.Furthermore, the shocks of food inflation on deposit accumulates over time horizons rather than dissipating. This conclusion has both historical precedence with similar pattern observed in FY05.The report assessed that during 2004-05, average oil price was $41.3 per barrel which was 42.3 per cent higher than average price of $29 per barrel in previous year. The credit growth observed during the same year was 21.7 per cent compared to 13.5 per cent growth a year ago.Deposit growth which was higher than credit growth in previous year at 17.5 per cent declined to 14.1 per cent completely flipping the credit deposit gap from negative to positive.SBI’s economic researchers observed that Indian banks are well-capitalised, with CRAR (capital to risk-weighted assets ratio) holding strong and low NPA (non-performing assets), providing a significant cushion for credit expansion and absorption of any macro-driven stress.“Indian banks are currently in a goldilocks period. Credit growth is expected to remain strong, supported by consumption demand & capex momentum; Banks to prioritise balance sheet discipline,” they said.Published on July 20, 2026