MUMBAI: Credit growth remained high across the banking system on a year-on-year basis for the quarter ended June 2026, with a few banks reporting advances grew at twice the rate of credit growth.
In contrast, the gap between credit and deposit growth widened with some banks (Bank of Baroda, IDBI, and RBL) reporting a decline in deposits compared to end-March 2026 levels.The central bank recorded a global growth in advances of about 28.8%, followed by Tamil Nad Commercial Bank at 27.%, Dhanlaxmi Bank at 26.5%, and J&K Bank at 25.5%. Among major lenders, Bank of India reported advance growth of 18.6%, while Canara Bank recorded around 18%, reflecting continued momentum in the corporate and RAM sectors.RBL Bank reported a 10.2% QoQ decline in total deposits. The bank said it made a tactical decision to allow the withdrawal of high-cost wholesale deposits after completing the preferential allocation to Emirates NBD on June 18, 2026, and relied on improved liquidity after the deal. IDBI Bank reported a sequential decline in deposits of 6.3%, 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% decline in global advances compared to the March quarter.Differences in strategy between public and private lenders remain evident. Public sector banks such as Canara Bank and Bank of India have maintained a more consistent growth trajectory for credit and deposits on a sequential basis, with growth ranging between 2.0% to 4.5% across assets and liabilities.
Private banks continued to adjust their liability profiles by reducing large, high-cost deposits to manage margins in a competitive market.Bankers said there were several factors driving credit growth in the first quarter, which is typically a weak season for credit. One of the reasons was the introduction of an emergency credit line guarantee system. Working capital cycles also grew longer due to supply chain disruptions caused by the blockade of the Strait of Hormuz following the conflict in West Asia.
Oil companies also turned into borrowers as net sales declined due to the government’s decision not to pass on the increase in crude oil prices to borrowers.According to Suresh Ganapathy of Macquarie, PSU banks are losing market share on deposits. “Based on their Q1FY27 disclosures, deposit growth was weak for them and 10.7% y-o-y deposit growth was weaker than the system’s 12% deposit growth… That’s why share prices of some PSU banks were weak after business updates,” he said.Regarding the broader bank credit data up to June 15, 2026, Ganapathy said: “Deposit growth remains the pressure point, lagging the 12.2% year-on-year advance. This has widened the credit deposit growth gap to 5.4% as of May 26, pushing the system’s loan-to-deposit ratio to 82.7% – among the highest levels in more than a decade.”
