File picture of Reserve Bank of India Governor Sanjay Malhotra | Photo Credit: ANI

Slower deposit growth as compared to credit growth does not constrain banks from lending as they have sufficient capital, according to RBI Governor Sanjay Malhotra.

As at May-end 2026, credit growth of all the scheduled banks at 17.44 per cent outpaced deposit growth of 12.14 per cent by 530 basis points.

In his reply to a specific question on bank deposits getting diverted to capital markets in an interview with ET Now, Malhotra said: “I think this move towards equities is a healthy one....People do need to diversify. And for investments, you need both credit as well as equity capital.

“So, it’s a healthy move both from the side of the households as well as for investments.”

Referring to the gap between bank credit and deposit growth, the Governor said: “I don’t think that that is a constraint for them to go out and lend...When you look at the banking system as a whole, banks individually may require deposits, but for the system as a whole, it’s not that deposits drive credit.

“It’s credit which creates deposits...Economists will understand that deposits are created by banks primarily through the credit that they give. If they give hundred rupees credit, it immediately increases the deposit because his (borrower’s) account is credited.”

The Governor noted that it’s a different thing that a depositor may withdraw his deposit from Bank A and put it in Bank B. But it’s going to remain in the system.

“So, the flow (of funds) is not from deposit to credit, but it is credit to deposit. Banks are constrained for credit only when they do not have sufficient capital and we (banks) have sufficient capital,” Malhotra explained.

The Governor highlighted that the capital to risk weighted assets ratio (CRAR) across bank groups was strong at about 17 per cent.

“So, going forward, I think, banks are well positioned to continue to serve the economy by garnering deposits and at the same time providing credit wherever it is needed,” he said.

Published on June 24, 2026