Bank Earnings in FY26 Shift from Margin Gains to Volume Growth Amid Funding Pressures
Bank earnings for the fiscal year 2026 are poised to transition from margin-led gains to volume-driven growth, as funding pressures intensify across the sector. According to recent data and analyses, banks are increasingly relying on costly wholesale sources to sustain their credit expansion, marking a significant shift in their financial strategies.
Rising Credit-Deposit Gap Intensifies Competition for Funds
Data released by the Reserve Bank of India (RBI) reveals that system-level advances grew by 13.8% as of March 15, outpacing deposit growth of 10.8%. This divergence has widened the gap between loans and liabilities, intensifying competition for funds. As a result, banks are turning to high-cost certificates of deposit, with issuances surging to record levels to meet the growing demand for credit.
Credit-Deposit Ratio Climbs, Forcing Reliance on Wholesale Funds
A report by Systematix Research highlights that the credit-deposit ratio has risen to around 83% in March, up from 81.7% in December 2025. This increase has forced banks to depend more heavily on wholesale funds. The report further notes that fresh certificate of deposit issuances jumped 46% year-on-year during the quarter, reflecting the mounting funding pressure faced by financial institutions.
Business Updates Reinforce Trend of Faster Credit Growth
Recent business updates from banks over the weekend reinforce this trend, with most institutions reporting faster credit growth compared to deposit accretion. Exceptions include HDFC Bank and Yes Bank, where deposit growth exceeded loan expansion. Notably, Bank of India, Kotak Mahindra Bank, and Yes Bank posted double-digit balance sheet growth in FY26, while IndusInd Bank reported a contraction, underscoring divergent funding strategies and balance sheet adjustments across lenders.
Strong Economic Momentum Drives Loan Demand Across Segments
The strong double-digit credit growth reflects continued economic momentum, with retail, agriculture, and MSME segments driving loan demand. For instance, Bank of India reported global advances rising 15.7% year-on-year to Rs 7,70,566 crore, while deposits grew 13.6% to Rs 9,27,460 crore, pushing its credit-deposit ratio to 83.1% from about 81.6% a year earlier. Similarly, Kotak Mahindra Bank saw net advances increase 16.2% to Rs 4,95,892 crore and deposits rise 14.7% to Rs 5,72,457 crore, with its credit-deposit ratio inching up to 86.6% from around 85.5%.
Yes Bank Stands Out with Stronger Deposit Mobilisation
Yes Bank emerged as an outlier, demonstrating stronger deposit mobilisation. Its deposits grew 12.1% to Rs 3,18,970 crore, outpacing loan growth of 10.7% to Rs 2,72,454 crore. This performance highlights varying approaches to managing funding challenges in the current fiscal environment.
