In a first, commercial banks' credit-deposit ratio breaches 80% mark

Another rate cut will make mobilising resources tough

Commercial banks’ credit-deposit (CD) ratio has, for the first time, topped the 80 per cent mark — the upper end of the regulatory comfort zone — signalling resource mobilisation challenges for lenders at a time when loan demand seems to be picking up in the economy. Commercial banks’ CD ratio was 80.21 per cent for the fortnight ended October 31, RBI data showed. 

The crucial banking ratio was over 80 per cent at the end of the last two reporting fortnights in October, Reserve Bank of India (RBI) data showed. In September too, it had crossed the 80 per cent mark, before dipping slightly in the next fortnight. A CD ratio in the range of 75-80 per cent is seen to be within the regulator’s comfort zone. 

The rise in the CD ratio is largely because growth in deposits has been sluggish and is now in single digits, lagging credit growth. RBI data shows banks’ year on year deposit growth was 9.7 per cent in October, falling from 10.3 per cent in March. Credit growth during the same period improved to 11.3 per cent from 11 per cent. 

Deposit mobilisation has been a challenge for banks at a time when there is a downward bias in the interest rate trajectory following a sharp 100 basis points (bps) repo rate cut by the Monetary Policy Committee (MPC) of the Reserve Bank of India between February and June. The policy repo rate has been kept steady since then. One basis point equals 0.01 per cent. 

To improve deposit mobilisation, some banks may consider raising deposit rates – reversing the monetary policy transmission. ICICI Bank, for example, raised the deposit rate for senior citizens to 7.2 per cent, effective Thursday. 

“The CD ratio has crossed 80 per cent and is expected to stay at this elevated level because credit growth is likely to improve further,” said Madan Sabnavis, chief economist, Bank of Baroda. 

Banks’ loan demand typically picks up during the second half of a financial year. Bankers are bullish on loan growth due to a combination of factors — low interest rates, GST rate rationalization and income tax benefits. Earlier this month, State Bank of India, the country’s largest bank, revised its credit growth projection for the current financial year to 12-14 per cent, from 11 per cent earlier. 

“Corporate investment demand, which was low earlier, should rise as consumption improves and capacity utilization increases. Large corporate borrowing is also adding pressure on the CD ratio, while deposit growth remains slow due to funds moving into mutual funds, causing credit to grow faster than deposits,” Sabnavis added. 

In response to the 100 bps repo rate cut during the current easing cycle, the weighted average domestic term deposit rates on fresh and outstanding deposits moderated by 106 bps and 22 bps, respectively. The significant decline in the fresh term deposit rates was also driven by a moderation in interest rates on bulk deposits. 

The weighted average lending rates on fresh and outstanding rupee loans have declined by 58 bps and 55 bps, respectively, RBI data showed. The recent RBI report noted that the central government has kept the rates on small savings schemes unchanged for the third quarter of 2025-26. The prevailing rates on these instruments exceed the formula-based rates. 

A further reduction in the policy repo rate – a section of the market expects RBI to cut rate in the next policy review meeting during 3-5 December – will make deposit mobilisation even more challenging for banks while fund flows to the small savings may get a boost. 

“Month-on-month credit momentum has strengthened since August, while deposit growth continues to lag, though October showed the first signs of deposits picking up,” said Gaura Sen Gupta, Chief Economist, IDFC FIRST Bank. 

“Because credit recovered earlier than deposits, the CD ratio has risen to around 80 per cent, near historical highs. Despite this, stress in the banking system isn’t apparent, as certificates of deposit remain low at around 2 per cent of deposits, supported by the RBI maintaining ample liquidity and softer overnight rates. Liquidity has been in surplus but is starting to decline,” she noted. 

Banking system liquidity has been comfortable so far on the back of 100 bps cut in the banks’ cash reserve ratio in phases, starting from the fortnight of September 6. The last phase will kick in from the fortnight starting November 29.