NewsStocksBanks Expected to Increase CD and Bond Issuances as Loan-Deposit Ratio Rises to 83.2% in FY27Banks Expected to Increase CD and Bond Issuances as Loan-Deposit Ratio Rises to 83.2% in FY27
India Ratings & Research projects loan-to-deposit ratio to rise to 83.2% in FY27 from 81.9% in FY26, as advances growth at 13% outpaces deposit growth at 11.4%. Banks are expected to bridge funding gaps through increased certificate of deposits and corporate bond issuances. The agency forecasts gross NPAs to improve to 1.7% in FY27 from 2.2% in FY25, while NBFCs face moderated growth at 15%-16% due to selective lending practices.
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India Ratings & Research expects banks to increasingly rely on certificate of deposits and corporate bond markets as the loan-to-deposit ratio continues rising, reaching potentially constraining levels in the coming fiscal years. The rating agency's outlook for the financial sector indicates that credit growth will persistently outpace deposit mobilisation through FY27.
Growth Projections and Funding Gap
The agency forecasts advances growth to remain steady at 13% for FY27, unchanged from FY26 levels. However, this will significantly outpace deposit growth, creating a widening funding gap that banks must address through alternative financing mechanisms.
| Parameter | FY25 | FY26 | FY27 |
|---|---|---|---|
| Loan-to-Deposit Ratio | 80.3% | 81.9% | 83.2% |
| Advances Growth | - | 13% | 13% |
| Deposit Growth | - | 10.7% | 11.4% |
"Elevated loan deposit ratios remain a constraining factor for the system at 81.9%. Banks are expected to bridge the gap between loans and deposits by tapping the CD and the corporate bond market," said Karan Gupta, head of financial institutions at India Ratings & Research.
Asset Quality Improvement Expected
The rating agency projects significant improvement in asset quality metrics across the forecast period. Gross non-performing assets are expected to decline progressively, reflecting better credit discipline and economic recovery.
| Metric | FY25 | FY26 | FY27 |
|---|---|---|---|
| Gross NPAs | 2.2% | 1.9% | 1.7% |
Banking Sector Profitability Outlook
India Ratings expects the pace of rise in bank profitability to bottom out during the current fiscal year, with gradual improvement anticipated in FY27. This recovery is expected as funding pressures ease and net interest margins stabilise, providing relief to banking sector earnings.
NBFC Sector Projections
Non-banking finance companies are projected to experience moderated growth, with loan growth rates expected at 15%-16%, lower than the 18% recorded in FY26. The agency anticipates NBFCs will adopt selective lending practices, particularly in the MSME segment.
"FY27 is expected to be a year of measured growth for NBFCs, as they will navigate asset quality challenges across multiple segments. Lower funding costs will provide some relief, but stricter customer selection is likely to compress yields, limiting profitability," Gupta explained.
The financial sector outlook suggests a period of cautious expansion, with institutions balancing growth aspirations against funding constraints and asset quality considerations.
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