Credit-deposit ratios of Indian banks crossed 80% in October, reflecting loan growth outpacing the deposit mobilisation rate. This calls for more proactive liquidity management and may even indicate a structural shift and not just a cyclical imbalance if the ratio remains elevated, explains Christina Titus
l What has led to a higher credit-deposit ratio?
THE CREDIT-DEPOSIT (CD) ratio of banks has crossed 80%, signalling a strong credit demand with sluggish deposit growth. The CD ratio rose to 80.44% on the fortnight ended October 17 after which it fell marginally to 80.21% on the fortnight ended October 21. The gap between credit growth and deposit growth has been widening since the start of the festive season when demand for loans started picking up. The Goods and Services Tax (GST) rationalisation in September also contributed to the higher credit demand.
Bank credit grew 11.31% as on October 31, while deposits rose 9.74%, according to Reserve Bank of India (RBI) data. During the same period last year, credit growth was at 11.52% and deposit growth at 11.74%. In the first half of the year, the situation was entirely different with banks struggling with credit growth.
According to a report from State Bank of India’s research department, the green shoots of growth in credit against lagging deposit growth calls for more proactive liquidity management.
l Why is this ratio important?
THE CD RATIO, also referred to as the loan-to-deposit ratio, helps us know how much of a bank’s deposits have been deployed as loans. For instance, if CD ratio stands at 80%, it indicates that bank has lent out `80 for every `100 deposit received from the customers. A higher ratio denotes a stronger credit growth where the deposits are growing slower.
The CD ratio tells how effectively a bank is using its deposits for lending, offering insight into its lending capacity, core operations, and profitability. It also provides an idea on bank’s liquidity position and its ability to fund the credit requirements of the various segments of the economy. Moreover, it is an important metric to assess a bank’s financial stability and overall economic activity. The ideal ratio is between 70-80%, according to experts. Less than that means a bank is not lending enough while a higher ratio indicates aggressive lending and heightened liquidity risks.
l Impact of a high ratio
A HIGHER CD ratio suggests that a bank is deploying a greater share of its deposits as loans, reflecting strong credit demand. However, it may also point to the bank’s limited ability to attract sufficient deposits to support this demand. Such a scenario can heighten liquidity risks. Persistently high CD ratios often indicate aggressive lending, which could pose vulnerabilities across the financial system. A high CD ratio also puts pressure on banks to mobilise more deposits to meet the lending demand since otherwise they will have to reduce lending to bring down the CD ratio. In a tight liquidity environment, banks may also need to raise funds through alternative funding sources, such as issuing certificates of deposit or accessing the bond market at higher costs, to meet their financing needs.
l But mobilising deposits isn’t easy
GARNERING LOW-COST current account savings account (CASA) deposits remains a challenge as investors shift their money to asset classes such as stocks and mutual funds for higher returns. This will be more acute if the RBI cuts interest rates further. The share of CASA deposits has been declining over the years, 37% in September 2025 from a high of 42% in March 2022. The government has flagged concerns over the declining CASA deposits and has urged banks to improve it. The decline in CASA deposits increases the cost of funds for banks, putting pressure on their margins.
l Will the ratio remain elevated?
THE CD RATIO will likely remain around the current level as credit growth is expected to improve further while deposit growth remains a challenge due to falling interest rates. The GST rationalisation became a game-changer, boosting credit demand. Along with this, other factors such as falling interest rates and income tax benefits are expected to push up the demand for credit. However, falling household savings and a growing preference for market-linked instruments remain a concern as it indicates the current funding challenge is deeper. Thus, a persistently higher CD ratio cannot be dismissed as just a cyclical imbalance and may point to a structural shift, requiring banks to work out targeted deposit strategies. Sustaining the credit momentum will be difficult without a strong deposit base.
l What was the earlier trend?
DURING THE MAJOR part of H1FY26, banks were struggling with credit growth. Credit growth dropped to 8.97% by the end of May, marking a three-year low and raising concerns, while deposit growth remained higher at 9.87%. The primary reason behind lower credit growth was weak corporate demand, as companies held higher cash reserves and scaled back capital expenditure plans amid trade war uncertainties, along with the availability of alternative avenues. Additionally, retail credit demand was also muted. The CD ratio was at 79% during the period.