Bank credit growth accelerated to an eight-quarter high of 16.5 per cent in the first quarter of FY27, but deposits grew at a much slower 11.3 per cent, widening the credit-deposit gap and increasing funding pressure on banks, CareEdge Ratings said in a report.
Credit outstanding rose to Rs 213.6 lakh crore as of June 30, 2026, while deposits stood at Rs 256.5 lakh crore. The 512-basis-point gap between credit and deposit growth was the widest in eight quarters, pushing the system’s loan-to-deposit ratio (LDR) to a record 83.3 per cent.
The report said the latest LDR high is significant because it was recorded in June, when seasonal factors typically do not push the ratio higher. This suggests the elevated level reflects an underlying funding gap rather than a temporary seasonal effect.
“The latest peak came in June, a quarter when the ratio is not seasonally elevated. This suggests the current level reflects an underlying funding gap rather than a seasonal effect,” the report said
The credit expansion was led by finance-sector lending, mainly bank funding to non-banking financial companies (NBFCs), which grew 22.4 per cent to Rs 25.3 lakh crore. The report said NBFCs and large corporates shifted towards bank funding as bond yields remained elevated.
Industry credit also grew 15.5 per cent, although infrastructure construction credit contracted 1.1 per cent. Trade credit rose 18.1 per cent, while personal loans grew 12.7 per cent, indicating that the current credit cycle is being driven increasingly by working-capital and operational funding rather than fresh capacity creation.
Public sector banks (PSBs) expanded credit by 17.3 per cent, compared with 14.8 per cent for private sector banks. However, PSBs’ LDR rose to 79 per cent from 73.9 per cent a year earlier, leaving less headroom within their historical range to support further strong credit growth.
The funding pressure eased temporarily after the RBI’s FCNR(B) swap facility. By August 31, mobilisation stood at USD 136.4 billion, including USD 127.2 billion through FCNR(B) deposits, while the credit-deposit growth gap narrowed to around 360 basis points from about 500 basis points. However, CareEdge said the inflows provide only temporary relief.
“Deposit mobilisation is now the key thing to watch,” Saurabh Bhalerao, Director, CareEdge Ratings, said, adding that competition for household savings is likely to persist as savers favour higher-yielding alternatives.
The report further said funding costs could firm again after the FCNR(B) window closed, while the high LDR leaves banks with less funding headroom. At the same time, asset quality remains a source of comfort, although geopolitical risks could weigh on credit demand and repayment capacity.
