Banks’ Loan-to-Deposit Ratio Hits Record High: Will RBI Rate Cuts Benefit Customers?

New Delhi: Banks’ loan-to-deposit ratio (LDR) has reached an all-time high. This indicates that the demand for loans is growing much faster than deposits, leading to concerns that interest rates on loans might rise in the future or that customers might not benefit from any rate cuts by the Reserve Bank of India (RBI).

In the December quarter, the LDR for Indian banks reached a record 81%, meaning banks are lending out 81% of the funds they are receiving as deposits. This shows that loan demand is outpacing deposit growth, putting pressure on banks to raise funds more expensively.

This development could have a direct impact on customers. Higher costs for banks to raise funds might lead to higher loan rates, or if RBI cuts interest rates, those benefits may not reach customers. As a result, banks will need to find better strategies to increase deposits. For example, India’s largest private lender, HDFC Bank, reported a 12% growth in loans in the last quarter, while deposits grew by just 11.5%. Consequently, HDFC Bank’s LDR has nearly reached 100%. By the end of December, HDFC’s total loans stood at ₹28.44 lakh crore, nearly equal to its total deposits of ₹28.59 lakh crore.

Government Banks’ Situation
This trend is consistent across the entire banking system, where credit growth (lending) is outpacing deposit growth. Bank of Baroda, for instance, reported a 14.57% increase in global advances (loans) to ₹13.44 lakh crore, while global deposits grew only 10.25% to ₹15.47 lakh crore. Similarly, Punjab National Bank reported a 11% increase in advances to ₹12.32 lakh crore, while deposits rose by just 8.5% to ₹16.6 lakh crore.

At Union Bank of India, global deposits grew by only 3.4%, reaching ₹12.22 lakh crore, while loan growth was 7.13%, with advances reaching ₹10.16 lakh crore. Pranav Gundlapalle, Head of India Financials at Bernstein, said, “While the increase in loan demand and growth in current and savings account deposits is positive, overall deposit growth remains weaker than expected. The bank management aims to raise the LDR to 90% by FY27, which will require a significant improvement in deposits by the March quarter and continuous progress until FY27.”

Private Banks’ Situation
Among private banks, Axis Bank’s gross advances increased by 14.1% to ₹11.70 lakh crore, while deposits grew by 15% to ₹12.60 lakh crore. Kotak Mahindra Bank saw a 16% increase in net advances to ₹4.80 lakh crore, with deposits rising by 14.6% to ₹5.42 lakh crore. Yes Bank reported a 5.2% increase in advances to ₹2.57 lakh crore, while deposits grew slightly faster at 5.5% to ₹2.92 lakh crore.

RBL Bank noted a 12% increase in deposits to ₹1.19 lakh crore, matching the 13% growth in advances, which stood at ₹1.04 lakh crore. In contrast, IndusInd Bank reported a 13.1% decrease in net advances to ₹3.18 lakh crore, while deposits fell by 3.8% to ₹3.94 lakh crore.

Suresh Ganpati, Head of Financials at Macquarie Capital India, said, “With the loan-to-deposit ratio above 81%, the highest level ever, banks may face challenges. If this situation persists, they may have to increase deposit interest rates or find it difficult to pass on the benefits of RBI’s rate cuts to customers.”

Non-Banking Financial Companies (NBFCs) Performance
Non-banking financial companies (NBFCs) are also showing strong growth in their businesses. Bajaj Finance reported a 15% increase in new loan bookings in the December quarter, with assets under management (AUM) growing 22% to ₹4.85 lakh crore. As of 31st December, their deposit book stood at ₹71,000 crore. Poonawalla Fincorp reported a 77.5% increase in AUM, reaching ₹55,000 crore. M&M Finance reported a 7% increase in loan disbursements, totaling ₹17,600 crore, while business assets grew by approximately 12% to nearly ₹1.29 lakh crore.