Indian banks lent more money in 2025 than they gathered through deposits in the year, as low deposit rates and investors’ preference for other instruments weighed on inflows.
This has sent the system’s incremental credit-deposit (CD) ratio—which tracks fresh loans and deposits during the year—soaring to 102% in 2025 from 79% a year earlier. A CD ratio above 100% implies that banks are lending more money than the incremental deposits they are mobilising.
The widening CD ratio is forcing banks to lean increasingly on market borrowings, liquidation of excess statutory liquidity ratio (SLR) holdings, and balance-sheet buffers to raise money for lending, three bank executives said on condition of anonymity.
Credit offtake also grew faster, at around 11.7% as of 15 December, while deposit growth lagged at under 10%, intensifying pressures on funding costs, bond markets and the transmission of monetary policy.
Prakash Agarwal, partner at Gefion Capital, said weak deposit growth is forcing banks to compete aggressively for funds. Despite the RBI cutting policy rates, banks cannot lower deposit rates without risking further erosion in inflows. That, in turn, limits their ability to cut lending rates—except for loans linked to external benchmarks.
The weighted average domestic term deposit rates rose to 5.59% in November as against 5.57% a month ago and 6.47% in the year ago period, RBI data showed.
Pressure likely to persist
Analysts expect the gap between deposit and lending growth to continue for some time now.
In a report dated 2 January, Motilal Oswal Financial Services said that while system credit growth is expected to remain above 12% on-year in FY26 and rise further to 13% in FY27, competitive pressure in deposits are yet to ease, with deposit growth projected to remain steady at 10% year-on-year in FY26.
As deposits lag, banks are also turning to market instruments. “Deposits are new, which means that banks have to move towards CDs (certificates of deposit),” Agarwal said, warning that this raises short-term funding costs and keeps market rates elevated.
Brokerage firm Elara Securities also echoed similar concerns, saying it is “cautious on deposit trends, meaning weaker flow at the industry level and incremental CD ratios running very high”.
This could lead to potential pressure on net interest margins of banks going forward, which are already suffering even as loan growth remains healthy, the brokerage firm said in a note dated 26 December.
A contrarian view
However, some bankers cautioned against reading too much into the CD ratio in isolation.
“High CD ratio is concerning but it is also a bit dated metric because liquidity management at banks has moved towards the Basel-III liquidity norms, which are LCR (liquidity coverage ratio) and NSFR (Net Stable Funding Ratio),” Neeraj Gambhir, Executive Director at Axis Bank said.
Gambhir said if banks are able to raise more resources through routes other than deposits, then the CD ratio will rise because the banks will use those resources to fund their loans and will cover up for the shortfall in the deposit growth, Gambhir said.
According to him, the rising CD ratio also reflects “higher institutionalization of deposits and its interplay with LCR rules as retail depositors are diversifying their savings from bank deposits into other financial instruments”.
There is also a direct link between rising CD ratios and the bond markets. “If the CD ratio is going up, it means the credit growth is coming from selling of government securities from the excess SLR being held,” a senior private sector bank official said.
Banks’ SLR holdings were at 26.2% at the end of November, as against the requirement of 18%.
“Even a 2% change of the CD ratio means that much quantum of G-secs have been sold off and not repurchased,” the executive added.
With credit growth outpacing deposit growth, bankers believe the gap is being funded through liquidation of excess SLR, which “will continue to put pressure on the G-sec yields unless deposit growth comes through”.
Currently, yield on the 10-year benchmark government bond is at 6.61%, 11 basis points higher than before the RBI cut the repo rate by 25 bps last month. A hundred basis points equals 1%.