Major Indian banks have reported a consistent pattern where the expansion of their loan books is moving quicker than their ability to gather deposits. This trend was evident in the quarter that concluded on December 31, 2025. A notable shift is also underway in the composition of deposits, with customers increasingly opting for fixed-term deposits over the traditional current and savings accounts (CASA).
Leading Banks Show Diverging Growth Rates
HDFC Bank, the country's largest private sector lender, disclosed its financial metrics for the third quarter of the 2025-26 fiscal year. The bank's gross advances reached approximately Rs 28.5 lakh crore, marking a significant 11.9% increase compared to the same period in the previous year. On the liabilities side, total deposits grew to about Rs 28.6 lakh crore, which is an 11.5% rise year-on-year. This growth occurred even as the bank has publicly aimed to lower its credit-to-deposit ratio.
A deeper look into HDFC Bank's deposit portfolio reveals a crucial change. Deposits in current and savings accounts (CASA) stood near Rs 9.6 lakh crore, growing at 10.1%. In contrast, term deposits, which are costlier for the bank, surged to Rs 19 lakh crore after expanding by a faster 12.3%. This highlights a clear migration from low-cost to high-cost funding sources.
Public Sector Banks Follow a Similar Pattern
The trend was not confined to private banks. Public sector giants also displayed a gap between credit and deposit growth. Bank of Baroda's provisional data showed its global advances at Rs 13.4 lakh crore, a sharp 14.6% jump from December 2024. Its global deposits, however, grew by 10.3% to Rs 15.5 lakh crore. Domestically, advances were near Rs 10.7 lakh crore (up 13.5%) while deposits were about Rs 13.1 lakh crore (up 11.1%).
Punjab National Bank reported that its global advances increased by 10.2% to Rs 11.9 lakh crore. Meanwhile, global deposits rose by a slower 8.3% to Rs 16 lakh crore. Consequently, the bank's credit-to-deposit ratio climbed to 74.2% from 72.6% a year earlier. Union Bank of India saw its global gross advances reach Rs 10.2 lakh crore in Q3 FY26, a 7.1% increase year-on-year. Its global deposits stood at Rs 12.2 lakh crore, up 3.4% from the year-ago quarter but down about 1% from the preceding September 2025 quarter.
Implications for Banking Sector Margins
The ongoing shift in the deposit mix carries significant implications for bank profitability. The rising share of term deposits, which offer higher interest rates to customers, increases the overall cost of funds for banks. This directly pressures their net interest margins (NIM). The challenge is compounded in a scenario where interest rates are expected to fall, as term deposits typically have longer tenures of 2-3 years before they can be repriced at new, lower rates. This lag can squeeze margins further if the cost of old, high-rate deposits remains sticky while yields on new loans decline.
The collective data from these leading lenders underscores a banking sector where credit demand remains robust, but deposit growth is struggling to keep pace. This dynamic, coupled with the structural move away from low-cost CASA funds, is set to be a key area of focus for bank managements and investors in the coming quarters.
