Bank credit-deposit gap widens to 512 bps in Q1
In the first quarter of FY27, bank credit growth surged to 16.5% - an eight-quarter high - but deposit growth was far slower at 11.3%, causing the credit-deposit gap to widen to 512 basis points. This is the widest such gap in eight quarters and has pushed the loan-to-deposit ratio to a record 83.3%.
The report attributes this funding pressure not to seasonal factors, but to an underlying gap in funding. Credit outstanding reached Rs 213.6 lakh crore by June 30, 2026 while deposits stood at Rs 256.5 lakh crore.
The credit expansion was driven by finance-sector lending, particularly bank funding to non-banking financial companies (NBFCs), which grew by 22.4% to Rs 25.3 lakh crore. NBFCs and large corporates turned to bank funding as bond yields remained high.
Industry credit grew by 15.5%, though infrastructure construction credit fell by 1.1%. Trade credit rose 18.1%, and personal loans increased by 12.7%. This indicates that the current credit cycle is driven more by working-capital and operational funding rather than new capacity creation.
Public sector banks expanded credit by 17.3% compared to private sector banks' 14.8% growth. However, the loan-to-deposit ratio for PSBs rose to 79% from 73.9% a year earlier, leaving less room within their historical range to support further strong credit growth.
The funding pressure temporarily eased after the RBI's FCNR(B) swap facility, with mobilization standing at USD 136.4 billion as of August 31. This included USD 127.2 billion through FCNR(B) deposits. However, this inflow is only temporary, and deposit mobilization is now the key thing to watch. Saurabh Bhalerao, Director at CareEdge Ratings, noted that competition for household savings is likely to persist as savers favor higher-yielding alternatives.
Additionally, funding costs could rise again after the FCNR(B) window closes, and the high loan-to-deposit ratio leaves banks with less funding headroom. Geopolitical risks could also weigh on credit demand and repayment capacity.
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