Deposits win for private banks, loans trophy for PSBs: Q1 throws up opposing trends; private growth seen as healthier

Private sector banks far outpaced public sector peers on deposit mobilisation in the June quarter, with a 3.6-percentage point gap between the two, showed proforma numbers issued by 15 private and nine state-run lenders.

Private banks grew deposits 14.3% year-on-year during the period, ahead of a 10.7% increase by public sector banks (PSBs), underscoring the former’s continued structural advantage in attracting liabilities.

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Credit growth, however, presented a reverse scenario. PSBs overtook their private rivals, growing their loan books 16.4%, compared to private banks’ 15.9% — a 50-basis point differential. The mix of faster credit growth and slower pace of deposits at PSBs is raising concern about funding sustainability.

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“PSU banks grew advances slightly faster than private banks in the first quarter of FY27, but on a much thinner deposit base, pushing aggregate LDR (loan-to-deposit ratio) up sharply to 81%, from 77%, year-on-year,” said Suresh Ganapathy, head of financial services research at Macquarie Capital. "Private banks, by contrast, matched strong credit growth with healthier deposit accretion, leaving LDR only modestly higher at 92% from 91%. This makes private bank growth appear better funded — albeit from an elevated deployment level — while PSU banks are increasingly using surplus liquidity to drive loan growth.”

Long-term Structural Shift

“This is supportive for near-term earnings but gradually eroding their historical liquidity cushion,” said Ganapathy of Macquarie.

The deposit divergence reflects a decade-long structural shift. PSU banks have steadily lost deposit market share, declining to 57% in March 2026 from 76% at the end of FY2013-14. Private lenders, meanwhile, more than doubled their share of system deposits to 36.4% from 19.4% over the same period, according to Reserve Bank of India data.

Among large private banks, Axis Bank stood out with a 19% year-on-year rise in credit growth—surpassing HDFC Bank’s 15% and Kotak Mahindra Bank’s 12%, while IndusInd Bank and Bandhan Bank were softer. IDFC First Bank delivered 20.6% year-on-year loan growth, making it one of the stronger performers in the private bank cohort.

Among PSU lenders, Central Bank of India recorded 28.8% credit growth, while Bank of India and Bank of Baroda posted credit expansion of 18.6% and 17.4%, respectively.

June quarter numbers tell a striking story of convergence on credit growth front. A year ago, PSBs were outpacing private peers by nearly 2 percentage points on growth in advances, the result of an aggressive lending push by state-run lenders that had cleaned up their books and were deploying capital with renewed confidence. The gap has narrowed to 50 basis points, with private lenders growing advances 15.9% y-on-y versus 16.4% for PSBs.