PSU Banks See Strong Loan Growth But Slower Deposits, Will Higher Demand Force Banks To Raise Deposit Rates?

Mumbai: Public sector banks have started the first quarter of FY27 on a strong note. They have reported healthy growth in loans, showing that demand for credit remains strong across the country.

However, deposits have not grown at the same pace. This means banks are lending more money than the fresh deposits they are receiving from customers.

Loans Growing Faster Than Deposits

According to provisional business updates, loan growth across several state-owned banks ranged between 12% and nearly 29%. In comparison, deposit growth remained between 3.5% and 16%.

This gap suggests that while people and businesses are borrowing more, banks still need to attract more savings from customers.

Which Banks Reported Strong Growth?

Bank of Baroda reported a 17.4% rise in loans, while deposits increased 13.8%.

Bank of India posted 18.64% loan growth with 14.92% growth in deposits.

Punjab National Bank (PNB) recorded 12.85% growth in loans, but deposits increased only 8.5%.

Canara Bank reported 18% growth in loans and 11.7% growth in deposits. Indian Bank remained balanced with loan growth of 13.9% and deposit growth of 13.3%.

Central Bank of India reported the highest loan growth of 28.8%, while deposits grew 11.7%.

UCO Bank saw loans rise 21.3% and deposits 11%. Punjab & Sind Bank recorded 19.5% loan growth and 12.2% deposit growth.

Union Bank of India faced the biggest challenge in deposits. Deposits grew only 3.5%, while loans increased 12.5%.

Why Is Loan Demand Rising?

Banking experts say demand remains strong in retail loans, agriculture loans and MSME lending. More people are borrowing for homes, vehicles, personal needs and small businesses.

As loans grow faster than deposits, banks' credit-deposit ratio rises. This means a larger share of deposits is being used for lending.

Banks are also facing pressure on CASA (Current Account Savings Account) deposits, which are cheaper sources of funds. Lower CASA levels can increase the overall cost of raising money.

Will Banks Raise Deposit Rates?

Experts believe that if loan demand continues to stay strong while deposit growth remains slow, some banks may consider increasing interest rates on fixed deposits (FDs) or savings accounts to attract more customers.

There has been no official announcement yet. For now, banks are expected to focus on improving deposit mobilisation to support future loan growth and maintain healthy financial stability.