Bank loans continue to flow, deposits harder to come by

Indian banks are advancing more loans than they are incrementally garnering deposits, the latest central bank data showed, pointing to only a partial success for dedicated lender programmes aimed at boosting the deposit base and de-risking the credit environment.

The banking sector's incremental loan-to-deposit ratio (LDR) on a three-month rolling basis reached nearly 126% as of February 7, 2025. The incremental LDR stands at 103% so far this fiscal year, pointing to the persisting weakness in deposit mobilisation despite more circumspect advances toward unsecured loans and non-bank financing.

As of February 7, credit climbed 11.3% year-on-year, while deposits saw a more modest increase of 10.6%.

An analysis by India Ratings highlights that deposits have consistently trailed the banking system's credit growth since FY22, with an average gap of 416 basis points. This disparity has pushed system-wide LD₹higher, reaching 80.4% in the first half of the current fiscal year. «With the system LDR reaching its highest point in the past five years at 80%, the reliance on alternative funding sources, such as infrastructure bonds, is expected to persist,» the agency noted. «The competition for bulk deposits is likely to intensify if granular deposit growth continues to remain subdued.»

A rising LDR indicates that banks are increasingly relying on borrowed funds or other means to fund their credit growth rather than deposits, which could limit their lending capacity in the medium term.

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