Bank credit growth accelerated to an eight-quarter high of 16.5% in the first quarter of FY27, while deposit growth remained significantly lower at 11.3%, according to a report by CareEdge Ratings. The widening gap between loans and deposits has increased funding pressure on banks.
As of June 30, 2026, outstanding bank credit stood at ₹213.6 lakh crore, compared with deposits of ₹256.5 lakh crore. The difference between credit and deposit growth widened to 512 basis points, the largest gap recorded in eight quarters.
The faster expansion in lending also pushed the banking system’s loan-to-deposit ratio (LDR) to a record 83.3%.
Record Loan-to-Deposit Ratio Signals Funding Pressure
CareEdge Ratings said the latest rise in the LDR is notable because it occurred in June, a period when seasonal factors generally do not result in a higher ratio.
According to the report, the elevated LDR therefore points towards an underlying funding gap rather than a temporary seasonal movement. The higher ratio also indicates that banks have less room to support continued strong credit expansion without securing additional deposit funding.
NBFCs and Corporates Drive Credit Demand
The increase in bank lending was led by finance-sector credit, particularly funding provided to non-banking financial companies (NBFCs). Bank credit to NBFCs increased 22.4% to ₹25.3 lakh crore.
CareEdge said NBFCs and large corporates increasingly turned to bank financing as bond yields remained elevated.
Credit to industry also expanded by 15.5%, although lending to infrastructure construction declined by 1.1%. Trade credit grew 18.1%, while personal loans increased 12.7%.
The pattern indicates that the current credit expansion is being driven increasingly by working-capital and operational funding rather than new capacity creation.
Public Sector Banks Lead Credit Growth
Public sector banks (PSBs) recorded credit growth of 17.3%, ahead of private sector banks, which reported growth of 14.8%.
However, the LDR of PSBs increased to 79% from 73.9% a year earlier. This leaves public sector banks with comparatively less room within their historical range to maintain similarly strong credit growth.
FCNR(B) Inflows Offer Temporary Relief
Funding conditions received some temporary support following the RBI’s FCNR(B) swap facility. By August 31, mobilisation had reached $136.4 billion, including $127.2 billion through FCNR(B) deposits.
The credit-deposit growth gap subsequently narrowed to around 360 basis points, compared with approximately 500 basis points earlier.
However, CareEdge Ratings said the improvement may provide only temporary relief. Saurabh Bhalerao, Director, CareEdge Ratings, said deposit mobilisation remains an important factor to monitor, while competition for household savings is expected to continue as savers seek higher-yielding alternatives.
The report also noted that funding costs could rise again after the FCNR(B) window closed. At the same time, the elevated LDR leaves banks with less funding headroom.
Asset quality continues to provide some support, although the report noted that geopolitical risks could affect both credit demand and borrowers’ repayment capacity.
Disclaimer
This article is based on the information and analysis contained in the CareEdge Ratings report provided in the source material. It is intended for general informational purposes only and should not be considered investment, financial or banking advice. Readers should refer to official reports and disclosures before making any financial or investment decisions.