Bank credit growth to slow down in FY27, deposits a worry for lenders

MUMBAI : Multiple reports show that bankers are bracing for slower credit offtake in FY27 after a high base in FY26, with deposit mobilisation emerging as a constraint on margins.

According to a survey by the Indian Banks Association and Ficci, lenders have entered FY27 with a constructive but more calibrated outlook, with nearly 71% of respondents expecting growth in the 9% to 13% range.

Credit demand is expected to be led by retail, services and SME segments, while industrial lending is seen recovering gradually alongside an infrastructure and capexled cycle.

Bank deposits rose to Rs 262.3 lakh crore in FY26, up about Rs 31.2 lakh crore with growth accelerating to 13.5% from 10.1% a year ago.

Bank credit increased to Rs 213.6 lakh crore, rising by Rs 29.6 lakh crore with growth at 16.1% compared with 11% in FY25, pushing the credit-deposit ratio to 81.4% from 79.6%.

According to an SBI report on the outlook for FY27, credit growth is projected at 13-14% in FY27, while aggregate deposits are estimated to grow at 11% to 12%, creating a funding gap. This gap is expected to be partly bridged by relaxed liquidity coverage ratio norms that could free up Rs 2.7-3 lakh crore of lendable resources. “Declining Current Account and Savings Account (CASA) ratios are a major concern for banks, as they signal a shift from low-cost, stable deposits to more expensive funding sources, compressing net interest margins (NIMs),” the SBI report said.

“For FY27 we are looking at growth in deposits of 1012% and that in credit of 1214% based on assumption of GDP growth of 7% in real terms. The high base growth rate in FY26 will have bearing on that for FY27,” said Madan Sabnavis, chief economist, Bank of Baroda, in a report.

Part of the slowdown reflects the higher base of FY26, which was influenced by a change in data reporting by Reserve Bank of India from the last Friday of the reporting fortnight to March 31.

“There will be a reversal (in bank deposits) in the first fortnight of April just as was witnessed in Jan after there was a sharp increase of about Rs 7.3 lakh crore in deposits in the last fortnight of Dec. This was followed by a decline of Rs 3.6 lakh crore in the first fortnight of Jan,” Sabnavis added.