# 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.
- Title: Bank credit surges while deposits lag, widening funding gap
- Summary: 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…
- Keywords: bank credit growth, deposit growth, credit-deposit gap, loan-to-deposit ratio, funding pressure, indian banking, rbi, fcnr(b) swap, nbfc lending, public sector banks, private sector banks, asset quality
- Source: The Economic Times — https://economictimes.indiatimes.com/industry/banking/finance/banking/bank-credit-growth-hits-8-quarter-high-widens-funding-gap-as-deposits-lag-report/articleshow/134350337.cms
- Author: ANI
- Published: 2026-09-19T08:01:00+00:00
- Read time: 1 min
- Topics: bank credit growth, deposit growth, credit-deposit gap, loan-to-deposit ratio, funding pressure, indian banking, rbi, fcnr(b) swap, nbfc lending, public sector banks, private sector banks, asset quality
## 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.
## Key takeaway

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.