Bank Deposit Growth Lags Credit: LDR at 126% Incremental
Why in the news
Banks were lending faster than they were gathering deposits, pushing the loan-to-deposit ratio (LDR) up and forcing them towards costlier funding.
Key facts
- Incremental LDR (rolling 3 months, 7 Feb 2025): 126%; fiscal-year LDR 103%.
- Since FY22, deposits have lagged loans by an average of 416 bps.
- Banks lean on infrastructure bonds and bulk deposits.
| Indicator | Figure |
|---|---|
| Credit growth (YoY) | 11.3% |
| Deposit growth (YoY) | 10.6% |
| System LDR, H1 FY25 | 80.4% |
| Expected deposit growth, FY26 | 12-13% |
Concerns
- Savers prefer high-rate term deposits, which slows CASA growth; CASA is a cheaper funding source.
- Public sector banks are competing harder for deposits.
- Reliance on bonds and borrowings may squeeze margins and cause liquidity mismatches.
- RBI may step in if LDR keeps climbing.
Way forward
- Improve CASA ratios with new savings and current account products.
- Offer attractive term deposit rates while managing cost.
- Explore sweep-in accounts and retail bonds.
Exam angle
- LDR = loans relative to deposits; CASA = Current Account Savings Account.
- Related terms: NIM, bulk deposits, basis points.