Mumbai: Public sector banks (PSBs) started the first quarter of FY27 on a strong note, with most lenders reporting healthy growth in loans. Credit demand remained strong across sectors, especially in retail, agriculture and MSME lending.
However, deposit growth failed to match the pace of loan expansion, creating pressure on banks’ funding base.
Deposits Lag Behind
Business updates from nine of the 12 state-owned banks showed that loan growth ranged between 12% and 29% year-on-year, while deposit growth remained between 3.5% and 16%.
This gap shows that banks are lending faster than they are gathering deposits. Slower deposit mobilisation can increase funding pressure if the trend continues.
Among major lenders, Bank of Baroda reported 17.4% growth in advances and 13.8% growth in deposits. Bank of India posted 18.64% loan growth against 14.92% deposit growth.
Punjab National Bank saw loans grow 12.85%, while deposits rose 8.5%.
Fastest Growing Banks
Central Bank of India emerged as the fastest-growing lender among the group. Its advances jumped 28.8% year-on-year, while deposits increased 11.7%.
Canara Bank reported 18% growth in loans and 11.7% growth in deposits. UCO Bank recorded 21.3% growth in advances, with deposits rising 11%.
Meanwhile, Union Bank of India stood out for weak deposit growth. Its deposits rose only 3.5%, even as advances increased 12.5%.
RAM Loans Drive Growth
Retail, Agriculture and MSME (RAM) loans remained the biggest growth driver for PSU banks.
Canara Bank led with 21.3% growth in RAM advances, followed by Bank of India at 19.7% and Bank of Baroda at 18.5%.
This indicates continued borrowing demand from consumers, farmers and small businesses.
Rising Pressure on CASA
Low-cost CASA (Current Account Savings Account) deposits remained under pressure.
Several banks reported a decline in CASA ratios, including Union Bank and Central Bank of India. As cheap deposits fall, banks may face higher funding costs.
The rising credit-deposit ratio across lenders shows strong lending momentum, but improving deposit growth will remain critical in the coming quarters.
