The demand for credit in India’s banking sector is coming from retail and, small and medium enterprises, according to V Vaidyanathan, managing director and chief executive officer at IDFC First Bank Ltd. As India’s GDP reaches around $7 trillion by fiscal 2030, retail credit would grow to 25% from 17-18% currently, Vaidyanathan told BQ Prime. "This is about $1.5 trillion from today's $600 billion

So there is a mega play going on." The corporate sector, too, will contribute to credit growth given India's expanding economy, he said.

In order to keep pace with the rising credit demand, the deposit balance has to rise as well, Vaidyanathan said. It will inch up from the current levels, he said. When the banking system raises interest rates, money from parallel systems, such as liquid mutual funds, flows back into the banks, Vaidyanathan said. Thus the money flowing into other sectors will provide some respite for the depositscredit imbalance, he said.

When the banking system raises interest rates, money from parallel systems, such as liquid mutual funds, flows back into the banks, Vaidyanathan said. Thus the money flowing into other sectors will provide some respite for the deposits-credit imbalance, he said. As banks remain tight on liquidity, Vaidyanathan said lenders have started to raise deposit rates, broadly keeping the net income margin stable.

While people may have stopped depending on term and fixed deposits to save money to some extent, they remain attractive albeit sensitive to interest rates, he said. India's capability to evaluate credit has "dramatically" improved over the last four to five years because of the credit bureau, Vaidyanathan said. Credit in the retail segment is truly an "underserved" category and is a fundamental driver of the economy, as India is massively moving from unorganised to organised sectors, Vaidyanathan said.