Credit continues to beat deposit growth, PSU banks proforma numbers show
State-run banks reported steady balance sheet expansion in the December quarter, with credit growth continuing to outpace deposit mobilisation, according to provisional data released on Friday. This underscores the persistent challenges banks face in garnering deposits. Average deposit growth at lenders such as Punjab National Bank, Bank of India, Indian Bank, Uco Bank and Punjab & Sind Bank stood at 10.72% year-on-year, while credit growth was significantly higher at 14.24%.
Punjab National Bank, the largest in this group, reported deposits of Rs 15.97 lakh crore, up 8.32% from a year earlier, while gross advances grew faster at 10.15% to Rs 11.67 lakh crore. Bank of India and Indian Bank posted double-digit growth in both deposits and advances, with loans rising 15.07% and 14.5%, respectively, compared with deposit growth of 12–13%.
According to JM Financial, loan growth is expected to have strengthened further in October-December, led by continued traction in retail, micro, small and medium enterprises (MSMEs) and services credit, with growth projected in the range of 9–15% year-on-year.
“Mirroring sectoral trends, credit growth for our coverage universe of 17 banks should pick up to 11.8% YoY, while deposit growth remains lower at around 10.2% YoY, resulting in a higher credit-deposit ratio of 85%,” the brokerage said.
Smaller lenders such as Uco Bank and Punjab & Sind Bank reported strong credit traction, with advances expanding over 15% as deposit growth remained in the high single to low double digits, reinforcing the system-wide trend of credit growth running ahead of accretion of money from depositors. Data is awaited from India’s bigger state-owned banks, such as State Bank of India and Bank of Baroda.
Brokerage Motilal Oswal noted that the credit cycle has seen a meaningful pickup following the goods and services tax (GST) rate cuts at the end of September, with system credit growth tracking above 11% in October and November 2025, driven by a consumption-led recovery.
“With the full 100 bps CRR (cash reserve ratio) cut now in place and recent supportive regulatory measures, further support to credit expansion is expected,” it said. System credit growth is likely to remain above 12% year-on-year in FY26 and improve to around 13% in FY27, it said, from 11-12% in FY25.
The Reserve Bank of India (RBI) in June announced a phased CRR cut of 100 basis points to 3%, from 4%.
Recent banking system data underline the persistence of the credit–deposit gap. For the fortnight ended December 12, bank loans rose 11.5% year-on-year, translating into an increase of over Rs 20.18 lakh crore, while deposits grew at a slower pace of 10.2%, increasing by Rs 22.43 lakh crore. A similar trend was observed in the preceding fortnight ended December 8, with credit growth at 11.5% and deposit growth at 10.2%.
“We believe competitive pressure on deposits has yet to ease, with banks continuing to face challenges in mobilising low-cost funding,” Motilal Oswal said. “However, ongoing term-deposit repricing should lead to a moderation in the cost of funds over the second half of FY26, partially offsetting the impact of the recent 25 bps repo rate cut. We expect deposit growth to remain steady at around 10% year-on-year in FY26.”
RBI cut the key repo rate by 25 basis points to 5.25% from 5.50% in December while maintaining a neutral stance to bolster growth amid low inflation.
Punjab National Bank, the largest in this group, reported deposits of Rs 15.97 lakh crore, up 8.32% from a year earlier, while gross advances grew faster at 10.15% to Rs 11.67 lakh crore. Bank of India and Indian Bank posted double-digit growth in both deposits and advances, with loans rising 15.07% and 14.5%, respectively, compared with deposit growth of 12–13%.
According to JM Financial, loan growth is expected to have strengthened further in October-December, led by continued traction in retail, micro, small and medium enterprises (MSMEs) and services credit, with growth projected in the range of 9–15% year-on-year.
“Mirroring sectoral trends, credit growth for our coverage universe of 17 banks should pick up to 11.8% YoY, while deposit growth remains lower at around 10.2% YoY, resulting in a higher credit-deposit ratio of 85%,” the brokerage said.
Smaller lenders such as Uco Bank and Punjab & Sind Bank reported strong credit traction, with advances expanding over 15% as deposit growth remained in the high single to low double digits, reinforcing the system-wide trend of credit growth running ahead of accretion of money from depositors. Data is awaited from India’s bigger state-owned banks, such as State Bank of India and Bank of Baroda.
Brokerage Motilal Oswal noted that the credit cycle has seen a meaningful pickup following the goods and services tax (GST) rate cuts at the end of September, with system credit growth tracking above 11% in October and November 2025, driven by a consumption-led recovery.
“With the full 100 bps CRR (cash reserve ratio) cut now in place and recent supportive regulatory measures, further support to credit expansion is expected,” it said. System credit growth is likely to remain above 12% year-on-year in FY26 and improve to around 13% in FY27, it said, from 11-12% in FY25.
The Reserve Bank of India (RBI) in June announced a phased CRR cut of 100 basis points to 3%, from 4%.
Recent banking system data underline the persistence of the credit–deposit gap. For the fortnight ended December 12, bank loans rose 11.5% year-on-year, translating into an increase of over Rs 20.18 lakh crore, while deposits grew at a slower pace of 10.2%, increasing by Rs 22.43 lakh crore. A similar trend was observed in the preceding fortnight ended December 8, with credit growth at 11.5% and deposit growth at 10.2%.
“We believe competitive pressure on deposits has yet to ease, with banks continuing to face challenges in mobilising low-cost funding,” Motilal Oswal said. “However, ongoing term-deposit repricing should lead to a moderation in the cost of funds over the second half of FY26, partially offsetting the impact of the recent 25 bps repo rate cut. We expect deposit growth to remain steady at around 10% year-on-year in FY26.”
RBI cut the key repo rate by 25 basis points to 5.25% from 5.50% in December while maintaining a neutral stance to bolster growth amid low inflation.
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