The gap between credit growth and deposit growth is likely to narrow in this financial year, reducing the liquidity risk that banks are facing. According to reports from The Economic Times, as of March 15, banks' deposit growth was seen at 10.8% while credit growth was recorded at 13.8%, widening the growth differential to 300 basis points. This represents a significant increase from the previous year when the gap was only 70 basis points, with credit expanding 11% while deposits grew at 10.3%. The trend is evident even in individual bank performance, as CSB Bank reported gross advances growing 27% to ₹40,364 crore and total deposits rising 20% to ₹44,246 crore in Q4 FY26, though the bank faced challenges with low-cost CASA deposits declining 1% to ₹8,832 crore.
Savers would be more prone to follow safety-first principles and put their surplus funds in banks instead of investing in market-related instruments as geopolitical concerns raise the volatility quotient. As reported by The Economic Times, Bank of Baroda chief economist Madan Sabnavis noted that deposits could do better due to fixed returns coming back in favour as markets remain volatile. He also highlighted that there is a high chance of a rate hike this year which will help deposit growth. This sentiment is reflected in individual bank performance, as CSB Bank's net interest income increased 20.7% year-on-year to ₹453.2 crore, though the bank faces challenges with funding costs rising as CASA ratio dipped to 19.9% from 20.1%.
Rating companies such as Crisil and CareEdge Ratings projected a moderation in credit growth as the economy faces downside risks following the West Asia crisis. According to Crisil's annual outlook report, the likely credit growth is 13% in 2026-27 on a base case basis, with downside risks to gross domestic product and hence credit growth arising from geopolitical events. CareEdge Ratings projected the credit growth at 13-13.5% for this fiscal year. However, individual bank performance shows mixed signals, with CSB Bank demonstrating strong loan demand while facing funding cost pressures from shrinking low-cost deposits.
Total bank credit stood at ₹207.7 lakh crore as of March 15, registering a 13.5% year-on-year growth. As reported by The Economic Times, bank credit expanded by ₹18,672 crore on a net basis in the fortnight ended March 15, a sharp decline from the preceding fortnight's ₹3.23 lakh crore expansion. Meanwhile, deposits contracted by ₹1.78 lakh crore to ₹250.1 lakh crore due to tax-related liquidity outflows before the fiscal-end. The trend reflects broader industry challenges, with banks increasingly turning to more expensive wholesale funding or fixed deposits as loan growth outpaces deposit growth.
The credit-deposit ratio hit a record high of 83.04% at the end of March 15 as credit offtake continued to outpace deposit accretion. According to Crisil's chief rating officer Krishnan Sitaraman, deposit growth is a key monitorable and a wider growth differential would also slow credit delivery, besides the war impact. Export-oriented micro, small and medium enterprises, especially those having exposure to West Asia, may face pressure in debt servicing due to the current geopolitical situation. The banking sector faces additional challenges with increased competition for deposits and the need to manage repricing carefully to protect net interest margins, which are already expected to face pressure in FY2026.
