Getting customers to park their money in deposits remains a struggle for banks, as loan demand continues to race ahead of deposit growth. In the March quarter, HDFC Bank stood out as the sole lender to raise deposits faster than loans, a period when its peers struggled.
Early business updates from 19 banks, excluding small finance banks, showed that only a few managed to shrink the gap between loan and deposit growth. One of them was state-owned Bank of Baroda (BoB), which reported 12% growth in deposits and a 16.2% growth in loans, against 10.3% and 14.7% respectively in the December quarter.
At India’s largest private sector lender HDFC Bank, deposits grew 14.4%, while loans expanded at 12% in Q4 of FY26, as against 11.6% and 11.9% in the December quarter. HDFC Bank was an outlier in this respect, and analysts said these numbers would assuage investor concerns raised by the abrupt exit of its part-time chairman Atanu Chakraborty.
“The provisional numbers would be reassuring for those investors who assess the bank's performance on any of these metrics: headline deposit growth - given the clear improvement from last quarter (on a YoY basis), and loan deposit ratio (LDR) - the improvement in deposit growth has translated to an improvement in LDR too, and it has dropped by over 400 basis points (bps),” analysts at Sanford C Bernstein (India) said in a note to clients on 4 April.
Deposit-raising has been a problem for quite some time now. Savvier investors are drawn towards the equity markets, directly or through mutual funds which have amped up awareness campaigns over the years. However, with equity markets under pressure over the last year and the current volatility owing to the West Asia war, it would be interesting to see whether some investors return to the banking system.
The overall banking system saw a loan growth of 13.7% and deposit growth of 10.8% in FY26 up to 15 March, shows the latest available data from the Reserve Bank of India (RBI).
Despite concerns that the war could cause an economic slump and slow down credit demand, analysts remain upbeat.
“The momentum remains robust, supported by liquidity buffers and a consumption-led recovery following GST cuts. Overall, we expect systemic credit growth to sustain at 13.5% y-o-y in FY27,” analysts at Motilal Oswal said in a note.
These analysts also said that while the system-wide deposit growth stood stable at 10.8%, faster credit growth has led to a spike in credit-deposit ratio to 83%.
“With competition for deposits remaining intense, banks continue to face challenges in mobilizing low-cost deposits. We expect term deposit rates to remain sticky, given the continued pressure on low-cost deposit mobilization,” the Motilal report said.
The provisional data also showed that the gap between deposit and credit growth widened for many banks over the past quarter. For instance, IDFC First Bank’s deposit growth was 300 bps above its credit growth in Q3, which reversed to a 280 bps deficit in the March quarter. Similarly, Kolkata-based Bandhan Bank’s deposit growth was 120 bps over its credit growth in Q3. However, in Q4, credit grew 260 bps higher than deposits.
Some of this is also due to the stronger credit growth in the last quarter of the financial year, when banks see higher demand for loans.
According to Care Ratings, credit growth was supported by traction in retail lending, robust small business financing, increased exposure to non-bank financiers, and opportunistic corporate borrowing.
“However, there might be higher lending activity in the second half of March, as banks tend to accelerate lending towards the end of the quarter and year-end,” it said on 31 March, citing RBI data up to 15 March.