Banks head into Q3 earnings with strong loan growth—but deposits, liquidity in focus

private sector banks including HDFC Bank, ICICI Bank, and YES Bank are set to kickstart the third-quarter earnings season from 17 January.Non-food credit for the banking sector grew almost 12% on year as on 15 December, according to latest data from the Reserve Bank of India, driven by a consumption-led recovery and supportive regulatory measures. This was up from around 9% in May.“Growth momentum has strengthened over the past few months and credit cycle has seen a meaningful pickup after GST cuts…with the full 100 bps CRR (cash reserve ratio) cut now in place and recent supportive regulatory measures, further support to credit expansion expected ahead,” Motilal Oswal Financial Services said in a pre-earnings note.Pre-quarterly updates from lenders suggest this momentum has sustained into the December quarter, even as deposit growth has lagged, at a little over 9% on year.Macquarie Research flagged that the loan-to-deposit ratio (LDR) for the banking system has climbed to over 81%, the highest level on record.

The widening gap between loan and deposit growth highlights a structural challenge for banks as they head into the earnings season.“LDR ratios now are at all time high levels…If the current situation persists for a long time, banks have to hike deposit rates or perhaps banks have limited room to pass RBI rate cuts, something that one needs to be careful about,” Macquarie Capital said in a report on 5 January.On 3 January, Mint reported that the banking system’s incremental LDR ratio, which tracks fresh loans and deposits during the year, soared to 102% in 2025 from 79% a year earlier. An LDR ratio above 100% implies that banks are lending more money than the incremental deposits they are mobilizing.The widening