The aggressive OMO purchase auction of G-Secs conducted by the Central bank is also resulting in the overall portfolio of these securities gradually coming down
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Banks’ investment in central government securities (G-Secs) and State Government Securities (SGS) grew at a slower clip of 3 per cent year-on-year (y-o-y) as on January 31, 2026 amidst credit growth picking up momentum.
The aforementioned development also comes in the backdrop of deposit growth lagging credit growth and the Reserve Bank of India (RBI) conducting a series of open market operation (OMO) purchase auction of G-Secs to provide liquidity to the banking system.
Banks’ investment in G-Secs and SGS’ grew at a higher clip of 11 per cent y-o-y as on January 24, 2025.
The differential between credit growth and deposit growth widened to 198 basis points as on January 31, 2026, from 109 basis points as on January 24, 2025.
As on January 31, 2026, deposit growth at 12.42 per cent y-o-y (10.20 per cent as on January 24, 2025) was lower than credit growth of 14.40 per cent (11.29 per cent).
The aggressive OMO purchase auction of G-Secs conducted by the Central bank is also resulting in the overall portfolio of these securities gradually coming down.
Considering that Banks have to park 18 per cent of the deposit they mobilise in Statutory Liquidity Ratio (SLR) securities (G-Secs and SGS’), they should have invested ₹5,05,251 crore in these securities during the January 24, 2025 to January 31, 2026 period. However, they invested only ₹1,96,804 crore, per RBI data.
Venkatakrishnan Srinivasan, Founder & Managing Partner, Rockfort Fincap LLP, observed that strong credit growth has reduced incremental demand for government securities.
“As banks channelise funds into loans amid healthy credit demand, their appetite for additional G-Sec holdings moderates. Loans typically offer higher returns than sovereign bonds, and expanding credit absorbs liquidity that might otherwise have flowed into G-Secs,” he said.
V Rama Chandra Reddy, Head – Treasury, Karur Vysya Bank, attributed the slower pace of growth in Banks’ investment portfolio to the sale of excess SLR securities (G-Secs) at the OMO purchase auctions. This way, the Central bank is helping banks’ bridge the gap between credit and deposit growth.
He estimated that the RBI infused liquidity amounting to about ₹6.70 lakh crore via OMO purchase auctions in the current financial year so far.
With Banks’ investment portfolio growing at a slower clip as compared to credit portfolio, their Investment-Deposit ratio has declined to 27.52 per cent as on January 31, 2026, from 30.04 per cent as on January 24, 2025 even as Credit-Deposit ratio rose to 82.54 per cent from 81.11 per cent.
Published on February 26, 2026
