Bank deposits surge, capital flows pick up; SBI Research sees stronger Q1 growth momentum

NEW DELHI: India’s banking system and credit markets are signaling a stronger start to FY27, with SBI Research pointing to buoyant capital flows, higher deposit growth and a pickup in both commercial paper and bank credit as early signs that economic growth may have surprised on the upside in Q1FY27.

The report by SBI Research expects the momentum to sustain through the quarter. It flags softer crude prices as a key tailwind. “Average crude oil price for Indian basket is now expected at $80/bbl which will lead to savings of $30 to $35 bn in oil import bill against our previous estimate when oil price crossed $130/bbl.” The house also notes the rupee outlook “remains positive” despite a recent 0.4% depreciation amid geopolitical tensions.

For the fortnight ended 30 June 2026, overall deposits jumped by around Rs 7 lakh crore, the “third highest fortnightly growth in 29-years.” SBI Research said that netting out the quarter-end effect of Rs 3.5-4 lakh crore, the surge also reflects stronger capital inflows. “An informed guess of the magnitude of overall capital flows stripping out the trend growth indicates that this number could be $15 bn.”

The report attributes part of this to FCNR(B), ECB and OFCB flows, and notes India has received “$7 bn FII inflows since the measures announced by the Government to bring the foreign inflows and boost the rupee.” Cumulative Debt FAR inflows stand at $2.7 bn. RBI’s foreign currency assets rose by $4.4 bn during the fortnight to $545.6 bn.

Credit activity has also accelerated. CP issuances in Q1FY27 were Rs 5.38 lakh crore, up 19% YoY, with June at a 55-month high of Rs 2.55 lakh crore. Incremental bank credit rose to Rs 5.6 lakh crore in Q1FY27 versus Rs 2.4 lakh crore a year ago. SBI Research observes that “Bank Credit and CP Issuances moving in the same direction – indicating economic resilience.” Top CP-issuing sectors such as power, real estate and steel also showed higher bank credit growth, and together these sectors account for “~69% of the new projects announcement in Q1.”

On rates, long-tenor G-sec yields rallied faster than corporate bonds in May-June on foreign inflows, while 3-year AAA saw better demand. The spread between CP weighted average yield and bank lending rates has narrowed to 115 bps in May 2026 from 169 bps in March.

With liquidity set to turn comfortable after the deposit surge and oil savings in view, SBI Research expects funding conditions to ease further, supporting both corporate borrowing and project execution in the coming months. (ANI)