Hello everyone,  

Welcome to the 186th edition of The Pattern — and the first one of 2026! Hope the year’s started well. As always, let’s get into what’s shaping finance, technology, and the economy this week. 

As 2025 closed, a trio of developments in Indian banking hinted at more than just another credit cycle. On the surface, things look healthy: loan demand is strong, bad loans are at record lows, and balance sheets are robust. But beneath those headlines, a new pattern is emerging that could define how credit gets funded going forward. 
 
Loans everywhere. Deposits? Not so much. 
Data from late 2025 shows that credit growth is now running clearly ahead of deposit growth. In the first half of December, bank loans were growing around 11–12% year-on-year, while deposits were closer to 9–10%, widening the credit–deposit gap. 

That gap matters because deposits are still the cheapest, most reliable source of funding for banks. When loans grow faster than savings, banks have to look elsewhere for money, i.e. wholesale markets, bonds, or inter-bank borrowing, all of which come at a higher cost. 

There’s also a policy angle at work here. When the RBI cuts rates, it’s deliberately making deposits less attractive. Lower returns on savings are meant to nudge households to spend or invest instead.  

But the same low-rate environment that encourages borrowing and spending also slows deposit growth. And that puts banks in a bind. They’re being asked to lend more, just as their cheapest source of funding grows more slowly. 

This isn’t entirely new. Indian banks have seen credit outpace deposits before. But the scale and timing matter. If the gap persists, funding costs rise. And if funding costs rise too much, banks may hesitate to pass on rate cuts fully to borrowers, which blunts the very policy intent meant to stimulate the economy. 

That tension — between what monetary policy wants and what bank balance sheets need — is becoming harder to ignore. 
 
Asset quality looks good... but that can mask underlying pressures 
On the asset side, banks look strong. According to the latest RBI data, bad loans (measured by gross non-performing assets) have fallen to multi-decade lows, nearing just 2.1% of total loans. 
 
That’s notable. After years of legacy stress in the system, seeing historically low NPA ratios suggests that borrowers are repaying and risk management has improved. Banks are lending without fear of defaults cropping up en masse. 

But ultra-low bad loans can be a double-edged sword. Squeaky clean portfolios today don’t guarantee a smooth sail tomorrow, especially if new credit is financed through more volatile sources. 
 
Demand is clearly picking up 
Recent reporting shows that businesses are borrowing more — not just to stay afloat, but to expand operations, manage day-to-day needs, and invest in growth (The Economic Times). This matters because it tells us credit demand isn’t being driven only by consumers anymore. Companies are stepping back into the market too. 

And that changes the tone of this cycle. This seems more than banks pushing loans in a slowdown. Businesses are actively seeking capital because they see room to grow.  

The real story 
Putting these pieces together reveals a shift in how credit is being supported: 

• Strong demand for loans means growth in credit is real and persistent. 

• Low bad loans give banks the confidence to lend. 

• But deposit growth isn’t keeping pace, meaning banks are increasingly reliant on alternate funding. 

This is a structural change in the banking ecosystem, and not a momentary blip. 

In the past, banks mostly lent what they collected in deposits. That stable foundation kept funding cheap and margins healthier. Now, with credit expanding faster than deposits, lending is being supported by market instruments and wholesale funding more than before. That changes both the cost and risk of credit expansion. 
 
I’m not saying that this spells crisis. Far from it, in fact. The banking sector is resilient, well-capitalised, and current risk indicators are healthy. But it does mean the next phase of credit growth will look different: more market-dependent, more interest-rate sensitive, and potentially more expensive to fund. 

What this means for 2026 

If this pattern persists, we can expect a few shifts: 

• Borrowers may still find credit available, but pricing could reflect higher funding costs. 

• Banks will increasingly treat funding strategy as a core competitive play, not just a liability exercise. 

• The system may remain healthy, but how it funds tomorrow’s loans will matter more than how it manages today’s defaults. 

Credit may be growing, and asset quality may be clean today — but the real story of 2026 won’t be about whether credit is expanding. It’ll be about how it’s being backed up. 

 
Reading list 

• 55% of Borrowers Shop Online, 52% Order Food: Moneyview Survey Maps India’s Digital-First Credit Use 

• Gold loans shine in India's credit mix, scaling 4x in three years: Report 

• Fewer ATMs, more UPI: RBI data shows subtle but clear shift in how India pays 

• Data Story | Big dreams, and bigger leverage fuel India’s small business loan

 That’s is all for this week. I’ll see you next time. 
 
If you liked this edition, please feel free to forward it to friends, colleagues, and your network. Do encourage them to subscribe as well. You can also follow FinBox on LinkedIn and myself on X to keep up with all the updates.    

Cheers,
Mayank

All opinions expressed are my own and do not necessarily reflect the views of FinBox or its promoters.