Until recently, Indian banks had maintained relatively stable interest rates, with expectations of gradual increases in line with economic recovery. However, the landscape has dramatically shifted as banks now raise interest rates to levels not seen in the last two years. This change comes as a direct response to a liquidity shortage and a significant credit-deposit imbalance.

As of February 2026, credit growth was recorded at 13.7%, while deposit growth lagged behind at 10.9%. This disparity has pushed the loan-to-deposit ratio to a concerning high of 82.5%. In an effort to attract more funds, banks are increasingly turning to Certificates of Deposit (CDs), with CSB Bank leading the charge by offering an impressive interest rate of 8.32% for 91-day CDs.

Ujjivan Small Finance Bank and Equitas Small Finance Bank have also joined the fray, raising funds at an interest rate of 8.25%. In contrast, larger institutions like HDFC Bank and IDBI Bank are offering a more modest 7.6% for short-term funds. This competitive environment has resulted in a significant increase in investments in CDs, which have surged to ₹6.64 lakh crore, marking a 75% growth over the last two years.

The difference between three-month CD rates and Treasury Bill rates has widened to 210 basis points, the highest since March 2020. This indicates a growing concern among banks about their funding costs, which Fitch Ratings predicts could lead to a decrease in net interest margins (NIMs) by 20-30 basis points by FY27.

Experts note that the current increase in interest rates has surpassed seasonal changes, highlighting the urgency of the situation. The liquidity crunch, driven by the ongoing imbalance between credit and deposits, is expected to persist until FY27, creating a challenging environment for banks and borrowers alike.

As this situation unfolds, the banking sector must navigate these turbulent waters carefully. The immediate effects of these rate hikes will likely impact both consumers and businesses, as borrowing costs rise and lending practices tighten. The long-term implications for the financial landscape in India remain to be seen, but the current trajectory suggests a significant recalibration of expectations in the banking sector.

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BlackRock has restricted withdrawals from its $26 billion HPS Corporate Lending Fund (HLEND) following a significant increase in redemption requests from investors. This decision raises questions about the stability and liquidity of private credit funds in the current market environment.

Details of the withdrawal restrictions

Investors requested to redeem 9.3% of their shares in HLEND, which amounts to approximately $1.2 billion. However, BlackRock capped repurchases at 5%, meaning investors will receive back around $620 million instead of the full amount they requested. This limitation is described as a foundational feature of the investment structure to prevent structural mismatches between investor capital and loan durations.

Market reaction and broader implications

Following the announcement, BlackRock’s shares fell more than 7% in New York trading, reflecting investor concerns about the fund’s liquidity. The restriction on withdrawals is part of a broader trend in the private credit industry, which is currently facing scrutiny due to recent bankruptcies.

Context of BlackRock’s private credit operations

BlackRock’s HLEND fund is a non-traded business development company that primarily raises capital from retail investors to lend to mid-sized companies. The fund became part of BlackRock in 2025 after the acquisition of HPS Investment Partners. In a contrasting situation, a separate BlackRock vehicle, the BlackRock Private Credit Fund, fulfilled all redemption requests despite investors seeking to redeem 4.5% of shares.

Investor confidence and future outlook

The private credit industry is currently grappling with growing concerns among investors, particularly in light of recent market volatility and bankruptcies. BlackRock defended its decision to restrict withdrawals as consistent with its long-standing approach to managing liquidity in its flagship direct lending product, HLEND.

As the private credit landscape evolves, the implications of these restrictions on investor confidence and fund performance remain to be seen. The decision marks one of the most prominent instances of gating investor withdrawals among major private credit funds in recent months.

Details remain unconfirmed regarding how these developments will affect the broader market and investor sentiment moving forward.

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