Indian Banks' Q1 Loan Growth Blitzes As Deposit Mobilisation Slows
Among private sector banks, HDFC Bank Ltd. was an outlier with deposits outpacing loans at 6.7% and 16.4%, respectively.
Credit-deposit growth divergence continued in April-June as advances growth has surged across most banks but deposit growth has struggled to keep pace, according to the provisional figures disclosed by lenders.
This trend was visible across public, private, and small finance banks with advances generally outperforming deposits.
Among private sector banks, HDFC Bank Ltd. was an outlier with deposits outpacing loans at 6.7% and 16.4%, respectively. However, this is on account of the merger with erstwhile Housing Development Finance Corporation, which came into effect on July 1, 2023.
For IndusInd Bank, it is important to view the numbers on a quarterly basis because of recent derivative accounting scandal. Its advances fell 3.1% on quarter and 4% on year, while deposits slipped by 3.3% sequentially and 0.3% on year.
Most banks saw deposit growth rates in the single digits or low teens. For instance, Yes Bank and ESAF Small Finance Bank reported the lowest deposit growth at 4.1% and 8.7%, respectively.
IDBI Bank’s deposits grew by just 7% and advances grew by 9% on year.
The standout performer, CSB Bank, posted 32% on year jump in advances as gold loans grew rapidly, while its deposits grew by 20%.
Among other private players, Karur Vsysya Bank reported strong 15% on year in advances, while Yes Bank, Bandhan Bank and HDFC Bank reported lacklustre growth in YoY advances at 5.1%, 6.4% and 6.7%, respectively.
Big public sector banks also slower deposit mobilisation, with Bank of Baroda's domestic deposits at 8.10%, lagging behind advances at 12.50%. It was similar in the case of Bank of India as well.
UCO Bank led with a 16.6% rise in advances, compared to an 11.6% increase in deposits. Bank of Maharashtra and Dhanlaxmi Bank also saw double-digit credit growth, but their deposit growth lagged behind.
Jammu and Kashmir Bank was the only public sector bank that saw 5.5% on year rise in advances and deposit growth at 12% during the quarter.
Barring Equitas Small Finance Bank, most lenders continued to be the growth engines posting deposit growth above 15%.
AU Small Finance Bank's deposits grew over 31% on year, sharply higher than its 23% on year rise in advances—a rare exception where deposits kept up. Suryoday Small Finance Bank also saw 39% deposit growth as these banks managed to attract deposits aggressively.
ESAF Small Finance Bank saw the slowest loan growth at 2.9% on year and deposit growth at 8.7%.
On a system level, credit growth slowed to 9.6% on year for all scheduled commercial banks as on June 13, recent data released by the Reserve Bank of India showed. Meanwhile, deposit growth for all scheduled commercial banks rose 10.3% on year in the same period.
The widening gap between credit and deposit growth could put pressure on banks’ liquidity in the coming quarters, analysts said. If this trend persists, banks may need to raise deposit rates or find alternative funding sources to sustain their lending momentum.
As Indian banks report robust credit growth in April-June, the lag in deposit mobilisation is emerging as a key challenge, they said.
With the economy showing signs of revival, the ability of banks to attract deposits will be crucial in supporting the next phase of credit-led growth.
