India money-market turnover hits Rs 5.5 tn record in May

Record activity in tri-party repos

India’s money-market turnover jumped to a record as state-owned lenders increased short-term borrowing to fund strong loan growth. The surge was led by the tri-party repurchase (repo) segment, which accounts for about 70% of the nation’s money markets. Trading value in this segment climbed to an all-time high of INR 5.5 trillion on May 13, according to Bloomberg-compiled data. The elevated volumes persisted after that peak, indicating sustained funding demand rather than a one-off event. The rise in secured money-market activity also reflects how banks are using collateralised instruments to manage liquidity needs. In practical terms, higher turnover in tri-party repos points to more frequent balance sheet adjustment by banks. It also highlights the importance of the repo ecosystem as a day-to-day funding channel.

Why public sector banks borrowed more

The increased borrowing was linked to strong credit demand across the banking system. State-owned banks stepped up borrowing to support lending at a time when deposit growth has been trailing credit growth. Central bank data showed credit demand has exceeded deposit growth for eight straight months. As the gap persists, lenders need to bridge funding needs through wholesale markets, including repos and certificates of deposit (CDs). The data also showed the credit-deposit gap widened to about 400 basis points as of May 15, the most in about two years. In this environment, money-market borrowing can help banks avoid sudden balance-sheet tightness while meeting loan demand.

Credit growth at a two-year high

Bank lending expanded at 16.2% in the year through May 15, the fastest pace in two years, according to the latest Reserve Bank of India data. The same dataset indicated this was the fastest clip since June 2024. Strong bank credit growth has been supported by borrowers choosing loans over bonds as a cheaper source of financing, based on the information cited. Alongside the lending surge, local bond sales fell 11% to INR 10.9 trillion, according to Bloomberg-compiled data. The combination of faster loan growth and softer bond issuance helps explain why banks have had to actively manage funding. It also provides context for why secured short-term funding volumes rose sharply in May.

Private banks pivoted from borrowers to lenders

A notable contributor to turnover was a shift in behaviour among private banks. According to an analysis by the Clearing Corp. of India, private banks, traditionally net borrowers, unusually pivoted to being lenders in May. That rotation matters because it changes the distribution of liquidity within the banking system. When private banks supply funds instead of absorbing them, it can lift traded volumes and alter rates in short-term markets. The move also suggests a more complex liquidity picture than a single, system-wide shortage. It indicates that some banks had surplus funds even as others needed to borrow to support credit growth.

Rates responded as funding demand stayed strong

Pricing in short-term instruments also reflected the demand for funds. Rates on six-month CDs climbed 88 basis points in May, the sharpest increase in four years, as reported in the provided text. Higher CD rates typically signal tighter competition for deposits and wholesale funding. The rise also aligns with the ongoing mismatch where credit growth is outpacing deposit growth. The commentary cited attributed higher bank credit growth to relatively high capital market yields, which can push borrowers toward bank loans. The net effect is that banks may face higher marginal funding costs even as loan growth remains robust.

Broader liquidity signals: RBI operations and deposits

Separately, SBI Research highlighted that the transmission of monetary easing across financial markets has been uneven despite large liquidity operations. The report cited record net RBI liquidity injection of INR 5.5 trillion in the current fiscal, and noted that money market and government securities yields did not soften in tandem. It also said that, after initially declining, money market rates including CPs and CDs have firmed up since August 2025 even as policy easing continued. Another liquidity indicator came from RBI data showing liquid demand deposits rose to INR 3.79 trillion at the end of the June quarter. Currency with the public rose to INR 0.91 trillion from INR 0.31 trillion, reflecting the impact of policy measures and other factors mentioned in the text.

Call money market revival alongside secured dominance

Along with repos, India’s interbank call money market has shown signs of revival. Average daily volumes in the call market rose to about INR 0.1649 trillion this month, the highest in over five years, based on Bloomberg-compiled data cited. Volumes touched INR 2.0 trillion on May 5, the highest since March 2020. Even with the revival, interbank trades accounted for just 2% of overall money-market turnover, down from 20% a decade ago, according to the same information. The transition has been characterised by the rise of secured borrowing, with repo transactions accounting for 98% of overnight market activity. The text also noted that RBI officials have been encouraging banks to use the call facility to keep its relevance to monetary policy alive.

What loan mix data says about the credit cycle

The credit expansion is visible in retail and consumption lending as well. Total retail loans outstanding crossed INR 170.2 trillion, up 16.6% year-on-year, according to the figures provided. Consumption loans reached INR 118.6 trillion, up 15.3% year-on-year. CRIF High Mark data for Q2 FY26 pointed to growth led by secured categories such as gold, home, and auto loans, even as borrower filters tightened. The report also said retail and consumption loan outstandings grew 18% year-on-year and 4.5% quarter-on-quarter in Q2 FY26. Within specific segments, it cited home loan originations of INR 3.02 trillion and personal loan originations of INR 2.92 trillion, with a shift toward higher ticket sizes.

Key numbers at a glance

Market impact and why it matters

The record turnover in tri-party repos shows that banks are leaning more on money markets to fund a loan book growing faster than deposits. Elevated secured market activity also aligns with the broader shift toward collateralised borrowing, with repos dominating overnight markets. At the same time, higher CD rates in May point to rising funding costs as banks compete for resources. The unusual switch of private banks to lenders helped lift trading volumes and suggests liquidity is unevenly distributed across institutions. The decline in local bond sales alongside strong credit growth indicates that part of corporate funding demand has moved toward bank loans. Together, these signals help explain why money-market volumes remained high after the May 13 record.

Conclusion

India’s money-market activity reached new highs in May, led by a record INR 5.5 trillion in tri-party repo trades, as banks responded to strong credit demand and a widening credit-deposit gap. With loan growth running at 16.2% year-on-year through May 15 and deposit growth still lagging, banks have leaned more on secured funding routes, while private banks’ shift to lending added to turnover. Separately, RBI and SBI Research commentary suggests liquidity conditions and rate transmission remain uneven across markets. Investors and market participants are likely to watch upcoming RBI data updates on credit and deposits, along with money-market rate trends and participation patterns in repos and the call market.