Indian banks saw a significant rise in deposit mobilization during the first quarter of the current financial year (Q1 FY26), even as credit growth remained sluggish, according to preliminary updates released by various lenders.
Data shows that deposit growth outpaced loan growth for several private banks and Punjab National Bank, with deposits rising between 8–16% year-on-year for commercial banks, and an even stronger 19–31% for small finance banks.
In contrast, loan growth lagged, expanding by 5–15% for most commercial banks and 11–18% for small finance banks. This marks a slowdown compared to Q4 FY25, when most large banks reported loan growth in the range of 12–22%.
Among public sector lenders, including Bank of Baroda, Bank of India, Indian Bank, and Bank of Maharashtra, loan growth surpassed deposit growth. These banks reported credit growth of 11–14%, while deposits grew by 8–10%.
YES Bank and CSB Bank emerged as outliers. YES Bank reported modest gains of 5% in loans and 4% in deposits, while CSB Bank recorded a 32% rise in loans and 20% growth in deposits.
The first quarter is traditionally slower for credit activity due to cyclical factors and a high base in Q4. This year’s slowdown has been further accentuated by lingering concerns from Q4 FY25, including rising stress in unsecured lending and microfinance portfolios.
Adding to the pressure is the monetary policy easing by the Reserve Bank of India (RBI). The central bank cut the key policy repo rate by 100 basis points between February and June 2025. While these cuts aim to stimulate borrowing, they have compressed net interest margins (NIMs) for banks.
“Q1 FY26 is set to be a tough quarter for banks. We expect NIM compression of 10–15 basis points,” Macquarie Research noted in a report dated July 2.
Due to RBI’s mandate requiring floating rate retail and MSME loans to be benchmarked to external rates (usually the repo rate), lending rates adjust more rapidly than deposit rates, which typically take 3–6 months to reprice. This results in a faster decline in loan yields, putting downward pressure on margins.
Surplus liquidity in the banking system and falling money market rates have also contributed to deposit growth. With investment yields declining in a rate-cut environment, savers are shifting their funds to short-term bank deposits, further boosting inflows.
India’s largest private sector lender, HDFC Bank, reported 16.2% YoY growth in deposits, significantly outpacing its 6.7% loan growth. The bank has been consciously prioritizing deposit growth to bring down its credit-deposit (CD) ratio, which improved from 96.5% in Q4 FY25 to 95.1% in Q1 FY26.
Macquarie called HDFC Bank’s performance "an impressive achievement," noting that the bank added ₹50,000 crore in deposits during the quarter—well above the projected ₹30,000 crore.
“The bank is on track to achieve a CD ratio of 92% by year-end, assuming 10% loan growth and 15% deposit growth,” the note added.
Despite strong deposit growth, HDFC Bank is expected to see a 10 bps margin compression in Q1, although margins are projected to remain flat for the full fiscal year—better than peer forecasts.
According to RBI’s latest data:
Weighted average lending rate (outstanding loans): fell from 9.75% in March 2025 to 9.67% in May 2025
Weighted average deposit rate: eased slightly from 7.11% to 7.07% in the same period
