Credit-Deposit Growth Divergence in Q1 FY26

Indian banks continued to experience a widening gap between credit and deposit growth in April–June 2025, with advances rising sharply while deposit mobilisation remained sluggish. Most public, private, and small finance banks saw loan growth outpace deposit growth, raising concerns about liquidity pressures. Private sector banks like CSB Bank and Karur Vysya Bank led in credit expansion, with advances growing by over 30% and 15%, respectively. However, deposit growth lagged, with Yes Bank , Bandhan Bank , and HDFC Bank reporting weak year-on-year advance growth of under 7%. Public sector banks also faced similar challenges, with Bank of Baroda and Bank of India seeing slower deposit growth compared to their loan books. Small finance banks fared better in attracting deposits, with AU Small Finance Bank and Suryoday SFB posting over 30% deposit growth. Equitas SFB was the only lender where credit growth exceeded deposits. On a system-wide level, credit growth for all scheduled commercial banks slowed to 9.6%, while deposits rose 10.3%, highlighting a potential funding challenge as banks seek to sustain lending momentum amid a recovering economy. Analysts warn that if this trend continues, banks may need to raise deposit rates or explore alternative funding avenues to maintain liquidity. This could be an issue for many with the RBI diktat on Loan Deposit Ratio (LDR).