From The Economic Times · ANI · · 1m 30s
Bank credit surges while deposits lag, widening funding gap
Indian banks face mounting pressure as credit growth hits an eight-quarter high but deposits can't keep pace.
In brief
Indian banks face mounting pressure as credit growth hits an eight-quarter high but deposits can't keep pace. Banks are increasingly reliant on expensive foreign funding and competition for deposits, with limited room to sustain current lending growth without addressing the widening credit-deposit gap. Originally…
Credit growth hits eight-quarter high
Bank credit accelerated to 16.5 percent in the first quarter of FY27, reaching a sixteen-month peak. But deposits grew at just 11.3 percent, creating a dangerous gap.
Loan-to-deposit ratio hits record high
The gap between credit and deposit growth widened to 512 basis points, pushing the system's loan-to-deposit ratio to a record 83.3 percent. This is the widest gap in eight quarters.
NBFC lending drives credit expansion
Finance-sector lending surged 22.4 percent, with banks funding non-banking financial companies as bond yields stayed elevated. NBFCs and large corporates shifted toward bank funding.
Public sector banks under strain
Public sector banks expanded credit 17.3 percent versus 14.8 percent for private banks. But their loan-to-deposit ratio jumped to 79 percent from 73.9 percent, leaving little room for further growth.
RBI swap provides temporary relief
The RBI's FCNR(B) swap facility brought in 136.4 billion dollars by August 31, narrowing the credit-deposit gap to 360 basis points. But this relief is temporary as the window has closed.
“Deposit mobilisation is now the key thing to watch”
Deposit competition will intensify
Banks face stiff competition for household savings as savers seek higher-yielding alternatives. Funding costs could rise again once the FCNR(B) window closes, squeezing bank margins.
The main idea
Banks are increasingly reliant on expensive foreign funding and competition for deposits, with limited room to sustain current lending growth without addressing the widening credit-deposit gap.
