SBI Report Flags Credit-Deposit Mismatch, Highlights RBI’s Evolving Liquidity Strategy

A report by State Bank of India’s research department highlights emerging stress in banking sector liquidity, with credit growth (11.3%) outpacing deposit growth (9.7%) as of October 31—widening the gap during the festive season after a sluggish Q1. This divergence calls for more proactive liquidity management by banks amid rising asset-liability pressures. The report notes that despite a cumulative 100 bps rate cut, government bond yields have remained elevated due to heavy supply—₹1 lakh crore per month in G-Secs till Feb 2026 and increased state bond issuances. The RBI’s cancellation of a 7-year bond auction signals discomfort with rising yields, underscoring its focus on yield curve control. To manage forex volatility without draining liquidity, the RBI is shifting towards non-deliverable forwards (NDFs) instead of spot market interventions. Its recent secondary market OMOs are seen as tactical moves to offset durable liquidity absorption from forex operations. SBI emphasized the importance of clear central bank communication in anchoring expectations, urging the RBI to sustain a culture of openness, consistency, and confidence to ensure stable and resilient financial markets.