{
  "id": 3624263,
  "title": "Shifting Gears: PSBs borrow more to cater to credit demand as deposits lag",
  "url": "https://urgent.news/2026/08/26/shifting-gears-psbs-borrow-more-to-cater-to-credit-demand-as-deposits",
  "topic": "finance",
  "section": "Finance & Markets",
  "published": "2026-08-26T19:06:56.000Z",
  "source": {
    "name": "The Economic Times - Top News",
    "slug": "the-economic-times-top-news",
    "url": "https://economictimes.indiatimes.com/markets/stocks/news/shifting-gears-psbs-borrow-more-to-cater-to-credit-demand-as-deposits-lag/articleshow/133553273.cms"
  },
  "original_language": "en",
  "account": "Public-sector banks (PSBs) are increasingly relying on borrowings to finance their lending growth as deposit accumulation fails to match the pace of credit expansion, potentially weakening their funding and liquidity edge over private lenders. Borrowings by PSBs rose nearly 29% year-on-year in the June quarter, against a modest 3% increase in private banks' borrowings.Between Q1 and Q2 of FY27, private banks widened their deposit growth advantage over PSBs to nearly four percentage points. Private banks added deposits at a 14.3% year-on-year rate, outpacing PSBs' 10.7% growth. This deposit shortfall has forced PSBs to continue relying on strong borrowing growth to support credit expansion, according to Pranav Gundlapalle, head of India financials at Bernstein. The PSBs' reliance on borrowings could negatively impact their net interest margins (NIMs) compared to private banks.Bernstein data shows that weighted-average certificate-of-deposit rates moderated to around 6.8% in July, down from 7.3% at the end of FY26, while certificate issuances declined to ₹95,900 crore from about ₹1.8 lakh crore. Despite slower deposit growth, PSBs outperformed private banks in net interest income growth by about four percentage points in the June quarter, benefiting from better margins and faster higher-yield retail loan growth.The combination of credit and deposit growth disparities at PSBs is raising concerns about their funding sustainability. While PSBs' advances grew slightly faster than private banks' in Q1FY27, their much smaller deposit base pushed their loan-to-deposit ratio (LDR) to an alarming 81% from 77% year-on-year. In contrast, private banks' LDR only increased modestly to 92% from 91%.This growing LDR at PSBs suggests that their surplus liquidity is being deployed more rapidly to boost loan growth. Despite their LDR remaining below that of private banks, the narrowing gap between their liquidity coverage ratios indicates constraints on PSBs' ability to sustain faster credit growth. The deposit divergence signals a decade-long structural shift, with PSBs' share of system deposits falling to 57% in March 2026 from 76% at the end of FY14. Private banks' share has risen to 36.4% from 19.4% over the same period, according to Reserve Bank of India data.",
  "summary": "Public sector banks are borrowing more to fund lending expansion. Deposits are not keeping pace with credit growth for these banks. Private banks show stronger deposit growth and are gaining market share. This trend raises concerns about funding sustainability for state-owned lenders. Abundant system liquidity currently cushions the impact of these shifts.",
  "key_points": [],
  "editors_take": null,
  "illustration": null,
  "coverage": {
    "outlets": 2,
    "also_reported_by": [
      {
        "outlet": "The Economic Times",
        "title": "PSBs borrow more to cater to credit demand",
        "url": "https://urgent.news/2026/08/26/psbs-borrow-more-to-cater-to-credit-demand",
        "published": "2026-08-26T19:06:56.000Z"
      }
    ]
  },
  "ai_generated": true,
  "disclaimer": "Summaries, key points and the editor’s take are written by software from other outlets’ reporting and may contain errors — always check the linked original."
}