Banks’ G-Sec portfolio is growing more slowly, while credit growth is increasing

The aggressive OMO purchase auction of G-Secs conducted by the Central Bank has also resulted in the overall portfolio of these securities gradually declining | Photo credit: designer491

The above development also comes against the backdrop of deposit growth lagging behind credit growth and the Reserve Bank of India (RBI) organizing a series of open market operations (OMO) purchase auctions of G-Secs to provide liquidity to the banking system.

Banks’ investments in G-Secs and SGS grew 11 percent YoY at a higher level than on January 24, 2025.

The difference between credit growth and deposit growth increased from 109 basis points on January 24, 2025 to 198 basis points on January 31, 2026.

On January 31, 2026, deposit growth of 12.42 percent yoy (10.20 percent on January 24, 2025) was lower than credit growth of 14.40 percent (11.29 percent).

The aggressive OMO purchase auction of G-Secs conducted by the Central Bank has also resulted in the overall portfolio of these securities gradually declining.

Considering that banks have to park 18 per cent of the deposits mobilized by them in Statutory Liquidity Ratio (SLR) securities (G-Secs and SGS’), they would have had to invest ₹5,05,251 crore in these securities between January 24, 2025 and January 31, 2026. However, they invested only ₹1,96,804 crore, according to RBI data.

Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP, noted that strong credit growth has reduced rising demand for government bonds.

“As banks channel money into loans amid healthy credit demand, their appetite for additional G-Sec positions is waning. Loans typically offer higher yields than government bonds, and expanding lending absorbs liquidity that would otherwise have flowed into G-Secs,” he said.

V Rama Chandra Reddy, finance chief at Karur Vysya Bank, attributed the slower pace of growth in the banks’ investment portfolio to the sale of excess SLR securities (G-Secs) at the OMO purchase auctions. In this way, the Central Bank helps banks bridge the gap between credit growth and deposit growth.

He estimated that the RBI has injected around ₹6.70 lakh crore of liquidity through OMO purchase auctions so far in the current financial year.

With banks’ investment portfolio growing at a slower pace compared to the loan portfolio, their investment-deposit ratio has fallen from 30.04 percent on January 24, 2025 to 27.52 percent on January 31, 2026, while the credit-deposit ratio rose from 81.11 percent to 82.54 percent.

Published on February 26, 2026