Loan books are swelling. Deposit accounts are not keeping up. Provisional business updates for the second quarter of FY27 reveal a stark imbalance in India's banking sector, with advances expanding at a double-digit pace while deposit growth lags behind. Tamilnad Mercantile Bank topped the list with 29.4% year-on-year growth in advances, followed closely by Karnataka Bank at 24.9% and UCO Bank at 24.8%.
The gap between lending and funding is widening, particularly at mid-sized and regional lenders. Karnataka Bank’s advances rose 24.9%, more than double its 12% deposit growth. Union Bank of India saw its loans surge 18.5%, yet deposits crawled forward by only 6.9%. Even major public sector giants like Canara Bank reported a 19.3% jump in credit against a mere 13.1% rise in deposits, highlighting the strain on their balance sheets.
Not all banks are struggling to close this gap. Bank of India managed to post 21.6% deposit growth, slightly outpacing its 20.4% credit expansion. South Indian Bank maintained perfect parity, with both advances and deposits growing at 18.7%. Dhanlaxmi Bank also stayed close, recording 20.2% deposit growth against 22.3% credit growth. These outliers suggest that aggressive retail deposit marketing is still working for some institutions.
The core issue is structural. Credit demand remains firm, driven by small business and infrastructure investment, but household savings are not flowing into banks at the same rate. This pressure forces banks to compete harder on interest rates or digital acquisition channels to secure the funding needed to support their expanding loan books. The next quarter’s data will determine if this trend stabilizes or deepens into a liquidity crunch.