Private Banks Lead Deposit Growth, Public Sector Banks Faster Credit Expansion in June Quarter

Private sector banks far outpaced public sector peers on deposit mobilisation in the June quarter, with a 3.6-percentage point gap between the two, showed proforma numbers issued by 15 private and nine state-run lenders.

Private banks grew deposits 14.3% year-on-year during the period, ahead of a 10.7% increase by public sector banks (PSBs), underscoring the former’s continued structural advantage in attracting liabilities.

Credit growth, however, presented a reverse scenario. PSBs overtook their private rivals, growing their loan books 16.4%, compared to private banks’ 15.9% — a 50-basis point differential. The mix of faster credit growth and slower pace of deposits at PSBs is raising concern about funding sustainability.

“PSU banks grew advances slightly faster than private banks in the first quarter of FY27, but on a much thinner deposit base, pushing aggregate LDR (loan-to-deposit ratio) up sharply to 81%, from 77%, year-on-year,” said Suresh Ganapathy, head of financial services research at Macquarie Capital. "Private banks, by contrast, matched strong credit growth with healthier deposit accretion, leaving LDR only modestly higher at 92% from 91%. This makes private bank growth appear better funded — albeit from an elevated deployment level — while PSU banks are increasingly using surplus liquidity to drive loan growth.”

“This is supportive for near-term earnings but gradually eroding their historical liquidity cushion,” said Ganapathy of Macquarie.

The deposit divergence reflects a decade-long structural shift. PSU banks have steadily lost deposit market share, declining to 57% in March 2026 from 76% at the end of FY2013-14. Private lenders, meanwhile, more than doubled their share of system deposits to 36.4% from 19.4% over the same period, according to Reserve Bank of India data.

Among large private banks, Axis Bank stood out with a 19% year-on-year rise in credit growth—surpassing HDFC Bank’s 15% and Kotak Mahindra Bank’s 12%, while IndusInd Bank and Bandhan Bank were softer. IDFC First Bank delivered 20.6% year-on-year loan growth, making it one of the stronger performers in the private bank cohort.

Among PSU lenders, Central Bank of India recorded 28.8% credit growth, while Bank of India and Bank of Baroda posted credit expansion of 18.6% and 17.4%, respectively.

June quarter numbers tell a striking story of convergence on credit growth front. A year ago, PSBs were outpacing private peers by nearly 2 percentage points on growth in advances, the result of an aggressive lending push by state-run lenders that had cleaned up their books and were deploying capital with renewed confidence. The gap has narrowed to 50 basis points, with private lenders growing advances 15.9% y-on-y versus 16.4% for PSBs.