Deposit Accretion Concerns Loom Over Indian Banks amid High CD Ratios

Indian banks face structural concerns over deposit accretion, with high credit deposit ratios potentially affecting loan growth. India Ratings forecasts a 13% loan growth for FY27 but highlights elevated CD ratios as a constraint. Government-owned banks show improvement, outpacing private peers in growth and asset quality.

Indian banks are grappling with structural concerns related to deposit accretion, as domestic rating agency India Ratings highlighted the issue on Wednesday. The agency warned that the elevated credit deposit (CD) ratio could hamper loan growth in the near future.

Despite maintaining a neutral outlook for the banking sector through FY27, the agency forecasts a 13% loan growth, essential for boosting GDP. Karan Gupta, head of financial institutions, noted that the system's CD ratio of 81.9% in H1 FY26 limits loan growth to the projected figure.

Low deposit growth poses a significant challenge, with advances growth surpassing deposits by an average of 6.5% over two years, leading to tight liquidity. Efforts by the RBI to revive the economy show promise, as lending recovers for NBFCs and the retail sector ahead of FY27.

(With inputs from agencies.)