Indian banks have demonstrated a powerful surge in lending activity during the October-December 2025 quarter, propelled by a combination of supportive monetary policy, fiscal reforms, and seasonal demand. Provisional business data reveals that credit expansion significantly outpaced deposit growth, pushing the banking system's credit-deposit (CD) ratio to a historic peak.
Record-Breaking CD Ratio and Growth Drivers
According to the latest data from the Reserve Bank of India (RBI), the credit-deposit ratio for banks reached an unprecedented 81.6 per cent as of December 15, 2025. This key metric, which shows how much of a bank's deposits are lent out, underscores the aggressive lending stance of financial institutions. The robust growth is attributed to a powerful trifecta: a cumulative 125-basis point reduction in the RBI's repo rate between February and December 2025, significant cuts under the next-generation Goods and Services Tax (GST), and festive season spending.
The government's GST overhaul, effective from September 22, simplified the structure into two primary slabs of 5% and 18%. This move, analysts note, provided a substantial boost to domestic consumption, particularly during the festive period from September to October.
Public and Private Sector Bank Performance
Loan growth across major public and private sector lenders ranged from 7.42 per cent to 20 per cent year-on-year for the third quarter of the 2025-26 fiscal year. Public sector banks led the charge with impressive advances growth.
Bank of Maharashtra reported the highest growth in advances at 19.61%, closely followed by Central Bank of India at 19.57%. Bank of India saw its loan book expand by 15.07%, while Bank of Baroda and Punjab National Bank posted growth of 13.54% and 10.15% respectively. Union Bank of India recorded a 7.42% increase in advances.
In the private sector, HDFC Bank's advances jumped by 11.9% to Rs 28.44 lakh crore, compared to Rs 25.42 lakh crore in the same quarter last year. Kotak Mahindra Bank reported a strong 16% rise in net advances.
Analyst Insights and Deposit Growth Trends
Industry experts link the credit surge directly to the recent policy measures. Suresh Ganapathy, MD and Head of Financial Services Research at Macquarie Capital, stated, "There has been a good pick-up in loan growth. This is the quarter where we have seen the full impact of GST cuts playing out. Growth could have been driven by auto loans, unsecured loans, and an overall pick-up in retail credit."
Santanu Chakrabarti, Banking and Finance analyst at BNP Paribas India, reinforced an optimistic outlook: "We expect liquidity revival to stimulate concurrent downstream growth in credit and CASA. We keep our above-consensus FY26E credit growth of 13% unchanged, reinforced by GST rationalisation benefits."
Deposit growth, while positive, lagged behind credit expansion. Among reporting banks, deposit growth for Q3 FY26 varied between 3.35 per cent and 15.3 per cent. Bank of Maharashtra led with 15.3% deposit growth, while Axis Bank also saw a strong 15% rise in deposits, which actually outpaced its loan growth of 14.1%. Punjab National Bank and Union Bank of India reported slower deposit accretion at 8.32% and 3.35%, respectively.
The high CD ratio was particularly pronounced for some major banks. HDFC Bank's CD ratio stood at 99.45%, and Axis Bank's was at 92.84%. Anil Gupta, Senior VP & Co-Group Head of Financial Sector Ratings at ICRA Ltd., explained, "Credit-deposit ratio has increased as banks deploy more resources towards credit. RBI measures like a 100-bps CRR cut and open market operations have freed up resources, enabling more lending with the same deposits."
The confluence of accommodative RBI policy, consumption-friendly GST reforms, and inherent festive demand has clearly set the stage for a strong credit cycle in the Indian banking sector, with implications for broader economic growth in the coming months.
