India's banking sector has demonstrated remarkable growth momentum, with the Credit-Deposit ratio climbing to 82% as of December 15, 2025, marking a substantial increase from 53% in 2000-01, according to an SBI Research Report released on Monday. This upward trajectory reflects the ongoing financialisation of India's economy and signals better financial development leading to strong economic growth.

Banking Sector's Post-Pandemic Revival

Indian banks have exhibited strong post-pandemic balance sheet recovery, with bank asset growth rebounding sharply to 94% of GDP compared to 77% in FY21. This revival reflects renewed credit intermediation and financial deepening across the banking system. The incremental CD ratio numbers crossed 100% in multiple instances, demonstrating increasing credit demand despite lean deposit growth, with banks meeting this demand by raising resources from alternative sources.

Massive Scale Expansion Over Two Decades

The banking system has witnessed unprecedented scale expansion between FY05 and FY25, with both deposits and advances growing manifold:

The faster growth in advances compared to deposits has driven the CD ratio increase from 69% in FY21 to 79% in FY25.

Public Sector Banks Reclaim Market Share

Public Sector Banks have shown continued revival after experiencing secular decline since FY08. PSBs are gradually reclaiming market share in both deposits and advances, indicating successful balance sheet repair and renewed lending appetite. From a peak of 71% market share in FY08, PSBs had witnessed steady decline, but latest data suggests a turnaround in their fortunes.

Evolving Banking Landscape and Employment Growth

The CASA stability has masked divergent trends across bank groups, with overall CASA ratios remaining around 37%. However, private banks have strengthened their CASA shares while foreign banks witnessed erosion. Unsecured advances expanded dramatically from ₹2.00 lakh crore to ₹46.90 lakh crore, with their share rising to 24.5% in FY25 from 17.7% in FY05.

Banking employment nearly doubled over two decades:

The significant increase in officer share from 36% to 76% indicates skill intensification and preference for higher-value roles within the banking sector. PSBs account for half of the unsecured lending market, followed by Private Sector Banks, demonstrating their continued relevance in India's credit landscape.

The Banking System faces mounting pressure as loan-to-deposit ratios (LDRs) reached an all-time high of 81% in the December quarter, reflecting a persistent divergence between credit growth and deposit mobilization across the sector.

HDFC Bank Performance Highlights Sector Trends

HDFC Bank, the country's largest private-sector lender, exemplified the sector-wide challenge with its LDR edging back towards the 100% mark. The bank's performance in the December quarter showed:

Pranav Gundlapalle, head of India financials at Bernstein, noted that while the recovery in loan growth and improvement in CASA growth are encouraging, headline deposit growth remains weaker than expected. Any meaningful improvement in the LDR towards management's 90% target by FY27 is now increasingly contingent on a seasonally strong pickup in deposit growth in the March quarter and sustained improvement through FY27.

Public Sector Banks Show Similar Patterns

Public sector banks demonstrated comparable trends with credit growth consistently outpacing deposit mobilization:

Private Sector Lenders Display Mixed Performance

Private sector banks showed varied performance patterns, with some maintaining better deposit-to-advance ratios:

Notably, IndusInd Bank bucked the trend with both advances and deposits declining year-on-year.

NBFC Sector Shows Robust Growth

Non-banking financial companies continued demonstrating strong balance sheet expansion during the quarter:

Industry Outlook and Concerns

Suresh Ganapathy, India head-financials at Macquarie Capital, emphasized the significance of the current situation, stating that at over 81% at a system level, LDRs are now at all-time highs. He warned that if this situation persists, banks may be forced to raise deposit rates or may have limited room to pass on RBI rate cuts, both of which warrant caution.

The banking sector faces a critical juncture as the divergence between credit demand and deposit growth continues to widen, potentially impacting future lending capacity and profitability across the industry.