Deposit accretion structural concern for banks, high CD seen constraining credit growth: Report

Mumbai, Jan 14 (PTI) Deposit accretion has become a "structural concern" for Indian banks, and the ensuing high credit deposit (CD) ratio may also constrain loan growth in the near future, a domestic rating agency said on Wednesday.

Maintaining its overall "neutral" outlook on the banking sector for FY27, India Ratings and Research said the loan growth, which lifts the overall GDP, will come at 13 per cent in the next fiscal.

"Elevated credit deposit (CD) ratios remain a constraining factor for the system at 81.9 per cent in H1 FY26, limiting the FY27 loan growth to 13 per cent," its head for financial institutions, Karan Gupta, said.

Deposit accretion is a "structural concern", the agency said, referring to the low deposit growth in the system.

The agency explained that in the two years to June 2024, advances growth consistently surpassed deposits growth by an average surplus of 6.50 per cent, leading to tight liquidity in the system and elevated CD ratios.

From April 2025, the RBI has "consistently tried to revive the economy" and recent trends are suggesting a buoyant recovery environment for FY27, with a revival in lending to non-bank finance companies (NBFCs) and the retail sector, in addition to a lower yield curve supporting corporate disbursements.

However, the elevated CD ratio "remains a major constraining factor for the system" and is expected to inch up further to 83.2 per cent in FY27, "potentially constraining incremental growth", the agency said.

The consumption demand is set to support a credit growth estimate of 13 per cent for FY27, and added that factors, including GST rationalisation, lower inflation, and capex disbursals, will drive the consumption theme in the coming quarters.

The rating agency also said the performance of the state-owned banks is improving consistently, and added that after shedding market share to their private sector peers, the government-owned banks have been outpacing the rivals in growth.

The agency said that the public sector banks (PSBs) are doing better than private banks, even in improving asset quality.

The agency has maintained a neutral sector outlook and a Stable rating outlook for non-bank finance companies (NBFCs) for FY2, and added that such entities will adopt a cautious growth approach in FY27, focusing on managing persistent asset quality challenges.

In the case of the troubled microfinance institutions (MFI) sector, the agency has maintained a stable rating outlook for FY27, and added that the sector has largely overcome the headwinds of FY25 and FY26. PTI AA BAL BAL