Bankers Brace for Slower Credit Growth in FY27 as Deposit Mobilization Poses Challenges
Multiple industry reports indicate that bankers across India are preparing for a deceleration in credit offtake during the fiscal year 2027, following a robust performance in FY26. This anticipated slowdown is largely attributed to the high base effect from the previous year and emerging constraints in deposit mobilization, which are expected to pressure net interest margins.
Survey Insights and Growth Projections
According to a joint survey conducted by the Indian Banks Association and Ficci, lenders have entered FY27 with a constructive yet more calibrated outlook. Nearly 71% of respondents anticipate credit growth to fall within the range of 9% to 13%. The demand for credit is projected to be primarily driven by the retail, services, and small and medium enterprise segments, while industrial lending is expected to recover gradually, supported by an infrastructure and capital expenditure-led economic cycle.
Deposit and Credit Trends in FY26
In FY26, bank deposits surged to approximately Rs 262.3 lakh crore, marking an increase of about Rs 31.2 lakh crore. This represented an acceleration in growth to 13.5%, up from 10.1% in the previous year. Concurrently, bank credit rose to Rs 213.6 lakh crore, with an increment of Rs 29.6 lakh crore, achieving a growth rate of 16.1% compared to 11% in FY25. This disparity pushed the credit-deposit ratio to 81.4%, up from 79.6%, highlighting the strain on funding resources.
Funding Gap and Liquidity Measures
An SBI report on the outlook for FY27 projects credit growth at 13-14%, while aggregate deposits are estimated to grow at a slower pace of 11% to 12%. This discrepancy is expected to create a funding gap. To address this, relaxed liquidity coverage ratio norms could potentially free up Rs 2.7 to 3 lakh crore of lendable resources, helping to bridge the shortfall partially.
Concerns Over Declining CASA Ratios
The SBI report also highlighted a major concern for banks: the declining Current Account and Savings Account ratios. This trend signals a shift from low-cost, stable deposits to more expensive funding sources, which is likely to compress net interest margins, further impacting profitability.
Expert Analysis and Economic Context
Madan Sabnavis, chief economist at Bank of Baroda, noted in a report that for FY27, deposit growth is estimated at 10-12%, with credit growth projected at 12-14%, based on an assumption of 7% real GDP growth. He emphasized that the high base growth rate in FY26 will significantly influence the figures for FY27. Part of the slowdown reflects this higher base, which was influenced by a change in data reporting by the Reserve Bank of India, shifting from the last Friday of the reporting fortnight to March 31.
Sabnavis added that a reversal in bank deposits is expected in the first fortnight of April, similar to the pattern observed in January. After a sharp increase of about Rs 7.3 lakh crore in deposits in the last fortnight of December, there was a decline of Rs 3.6 lakh crore in the first fortnight of January, illustrating the volatility in deposit flows.
