India Forex Reserves Drop to $734.61 Billion as Commercial Bank Credit and Deposit Expansion Remains Robust

Data released in the Reserve Bank of India's (RBI) latest Weekly Statistical Supplement highlights divergent trends between India's external buffers and the domestic banking system. While foreign exchange reserves saw a sharp week-on-week contraction due to active currency management and global valuation shifts, scheduled commercial banks (SCBs) continued to log double-digit expansion across deposits and lending.

Forex Kitty Shrinks Amid Global Pressure

India’s total foreign exchange reserves decreased by ₹91,176 crore ($12.95 billion) to stand at ₹7,073,111 crore ($734.61 billion) as of October 2, 2026. The drawdown marks a continuation of declines from the record high of $785.71 billion logged in early September, reflecting the RBI's ongoing interventions in the spot and forward foreign exchange markets to curb excessive volatility in the Indian rupee amid elevated crude prices and strong US Treasury yields.

Breakdown of Foreign Exchange Reserves as of October 2, 2026:

• Foreign Currency Assets (FCAs): Dropped by ₹74,933 crore ($10.66 billion) during the week to ₹5,822,889 crore ($604.75 billion).
• Gold Reserves: Decreased by ₹17,131 crore ($2.29 billion) week-on-week to ₹1,024,611 crore ($106.41 billion).
• Special Drawing Rights (SDRs): Rose marginally by ₹980 crore ($15 million) to ₹179,636 crore ($18.66 billion).
• Reserve Position in the IMF: Fell by ₹92 crore ($15 million) to settle at ₹45,974 crore ($4.79 billion).

The foreign currency assets, which represent the largest slice of India's reserve basket, incorporate valuation effects from fluctuations in major global currencies like the euro, pound sterling, and Japanese yen against the US dollar, alongside the RBI's direct market operations.

Commercial Banking Sector Shows Sustained Momentum

In contrast to the tightening external buffer, domestic commercial banks registered robust balance sheet growth. According to the RBI’s fortnightly banking data for the period ended September 30, 2026, liquidity and credit transmission in the real economy showed healthy activity.

Aggregate deposits of scheduled commercial banks reached ₹28,395,693 crore, marking a fortnight-on-fortnight jump of ₹772,627 crore. On a year-on-year basis, bank deposits expanded by ₹4,297,111 crore, representing an annual growth rate of 17.8%. Demand deposits rose by ₹400,307 crore during the fortnight to reach ₹3,736,418 crore.

Bank credit exhibited similar strength, with total outstanding credit across commercial lenders reaching ₹22,994,658 crore. On an annual basis, bank credit rose by ₹3,733,325 crore, reflecting broad-based funding demand across corporate and retail lending pipelines.

Liquidity Operations and State Borrowings

The central bank's liquidity adjustment facility (LAF) operations reflected shifting cash positions within the domestic financial system. Net liquidity absorption declined from ₹336,013 crore to ₹203,127 crore between September 28 and October 4, 2026, indicating liquidity outflows driven by quarter-end tax outflows and commercial activity.

On the RBI’s balance sheet, loans and advances to state governments rose to ₹38,414 crore as of October 2, 2026, up from ₹8,590 crore in the preceding week and ₹22,137 crore in the corresponding period of the previous year. Advances to the central government remained at zero, in line with statutory arrangements.

Market Takeaway

For market participants and institutional investors, the data underscores a resilient domestic macro environment. Even as the central bank utilizes its substantial reserves to shield the domestic currency from external macro volatility, the sustained double-digit growth in bank deposits and credit indicates that domestic consumption and investment demand remain well-insulated from global monetary tightening.

Tags: Reserve Bank of India Indian Banking Sector Forex Reserves Bank Credit Growth Scheduled Commercial Banks