Credit Growth Outpaces Deposit Mobilisation at Indian Banks in Q2 FY27

TOI Business•Published: Oct 5, 2026 05:31 AM IST

Several Indian banks reported that credit growth continued to outpace deposit growth during the second quarter of FY27. Despite concerted efforts by financial institutions to accelerate deposit mobilisation, loan books expanded at a double-digit pace across both public sector and mid-sized private lenders.

Credit Expansion: Smaller banks, including Tamilnad Mercantile Bank and Karnataka Bank, recorded impressive credit expansions during the quarter.
Public Sector Growth: Larger public sector institutions like Bank of India and Canara Bank also witnessed substantial growth in their advances.
Deposit Lag: Deposit growth varied widely across the banking sector, with several banks struggling to keep pace with the rapid expansion of loans.

The Context & Background

This persistent gap between credit and deposit growth has been a key focus area for Indian banks and regulators. Financial institutions have been actively trying to mobilize deposits to fund the robust credit demand driven by economic activity, but deposit growth remains a challenge.

Why it matters:The widening gap between credit and deposit growth could strain bank liquidity and push up funding costs as banks compete more aggressively for deposits. If deposit growth continues to lag, it may eventually force banks to slow down their lending pace, potentially impacting broader economic credit availability.

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