Loan growth speeds up in Q1, deposits still lag

MUMBAI: Credit growth remained elevated across the banking system on a year-on-year basis for the quarter ended June 2026 with few banks reporting advances growing at double the rate of credit growth. In contrast, the wedge between credit and deposit growth widened with some banks (Bank of Baroda, IDBI and RBL) reporting a dip in deposits compared to end March 2026 levels.Central Bank recorded global advances growth of about 28.8%, followed by Tamilnad Mercantile Bank at 27.%, Dhanlaxmi Bank at 26.5%, and J&K Bank at 25.5%. Among large lenders, Bank of India reported advances growth of 18.6%, while Canara Bank posted about 18%, reflecting continued traction in corporate and RAM segments.RBL Bank reported a 10.2% quarter-on-quarter decline in total deposits. The bank said it took a tactical decision to allow high-cost wholesale deposits to roll off after completing a preferential allotment to Emirates NBD on June 18, 2026, and relied on improved liquidity after the transaction. IDBI Bank reported a 6.3% sequential decline in deposits, with liabilities falling from Rs 3,47,163 crore to Rs 3,25,393 crore. Bank of Baroda reported a 0.9% decline in global deposits and a 0.9% reduction in global advances compared with the March quarter.Differences in strategy between public and private lenders remain visible. Public sector banks such as Canara Bank and Bank of India maintained a more aligned credit and deposit growth trajectory on a sequential basis, with growth in the range of 2.0% to 4.5% across assets and liabilities. Private banks continued to adjust liability profiles by reducing high-cost bulk deposits to manage margins in a competitive market.Bankers said that there were several drivers for credit growth in the first quarter, which is typically a lean season for credit. One of the reasons was the introduction of an emergency credit line guarantee scheme. Also working capital cycles grew longer due to supply chain disruptions caused because of the blockade in the Strait of Hormuz following the conflict in West Asia. Oil companies also turned borrowers as net realisations dropped due to the government decision not to pass on increase in crude oil prices to borrowers.According to Suresh Ganapathy of Macquarie, PSU banks are losing market share on deposits. “Based on 1QFY27 disclosures, deposit growth has been weak for them and deposit growth at 10.7% YoY is weaker than system deposit growth of 12%…That’s why some PSU banks stock prices have been weak post business updates,” he said.On the broader bank credit data up to June 15, 2026, Ganapathy said “Deposit growth remains the pressure point, trailing advances at 12.2% YoY. This has widened the credit-deposit growth gap to 5.4% as of May-26, pushing the system loan-to-deposit ratio to 82.7%-which is among the highest levels in over a decade.”