Liquidity with out enhance in credit score progress can result in bubbles: SBI Capital report-OxBig News Network

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

“RBI has kept the liquidity tap flowing with a cumulative OMO of over Rs. 5 trillion in 2025. However, historically, liquidity has boosted deposit more than credit growth. Hence, liquidity can only be an enabler not prime mover of credit, and can lead to bubbles,” the authors of the report discovered.

To ensure, the lag between credit score and deposit progress had been converging, knowledge 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 gap between credit and deposit growth in the Indian banking system has narrowed over the past few quarters. This is partly due to a slight pick-up in deposit growth and also because credit growth has slowed — a result of both demand-side moderation and some supply-side constraints,” stated Shrikant Chouhan, Head of Research at Kotak Securities.

The enhance in liquidity doesn’t have a direct influence on credit score stated, Anitha Rangan, Economist at Equirus Securities, Economist at Equiris Securities. “Neither rates nor liquidity can induce credit growth. Okay, credit growth actually comes when there is a demand for credit. Demand for credit comes when there is an underlying growth in the economy,” 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 which means full enhance in credit score progress to take off each private and non-private capital expenditures to take-off.