India’s credit-deposit (CD) ratio has remained below the 80% threshold, reflecting a slowdown in lending momentum even as deposits continue to rise steadily. The muted credit growth highlights challenges for banks in translating liquidity into lending, driven by cautious risk assessment, sectoral headwinds, and tightening regulatory norms.
The trend raises concerns about whether credit expansion — a critical driver of economic growth — can keep pace with the government’s broader investment and consumption push.
Core Development
Latest banking data shows that while deposit mobilization remains strong, credit growth has moderated, pulling the CD ratio below 80%.
Key observations include:
Slower Loan Demand: Weaker appetite in corporate borrowing amid tariff uncertainties.
Risk Aversion: Banks remain cautious in MSME and unsecured lending.
Deposit Growth: High deposit inflows, partly due to attractive rates offered by banks.
The imbalance reflects a cautious stance by lenders even as the government and RBI seek stronger credit flow into the economy.
Key Drivers Behind Weak Lending
Global Uncertainty: Tariff shocks and volatile capital flows dampen corporate borrowing.
Regulatory Oversight: Stricter provisioning and asset quality reviews.
Consumer Behavior: Rising preference for savings and lower demand for big-ticket loans.
Stakeholder Impact
Banks: Excess liquidity may weigh on margins if credit momentum does not improve.
Borrowers: Slower loan approvals and tighter credit terms, especially for MSMEs.
Economy: Weak lending momentum could limit investment and growth in the short term.
Industry & Policy Reactions
Analysts noted that the sustained CD ratio below 80% highlights a structural challenge in India’s credit markets. While deposits are flowing in, translating them into productive lending requires policy support, improved borrower confidence, and stronger demand revival.
Challenges Ahead
MSME Financing Gaps: Persistent reluctance to lend to high-risk segments.
Sectoral Headwinds: Industrial credit and real estate remain under stress.
Profitability Concerns: Lower CD ratios could compress banks’ net interest margins (NIMs).
Strategic Outlook
Reviving lending momentum will require a combination of policy incentives, risk-sharing frameworks, and demand-side revival. With credit being the backbone of India’s growth story, ensuring a healthier CD ratio will be critical to achieving sustainable economic expansion.
Why This Matters
The CD ratio is a barometer of banking sector health. Its sustained weakness indicates cautious lending behavior, which, if not corrected, could act as a drag on India’s broader growth momentum.
