Banks hit record credit-to-deposit ratio

Mumbai: Indian banks' credit-to-deposit (CD) ratio climbed to an all-time high of 81.75% as of December 31, indicating pressure on lenders to shore up deposits amid rising loan demand, Reserve Bank of India data showed. The ratio means banks lent ₹81.75 for every ₹100 of deposits mobilised. While the RBI does not prescribe a cap, it has urged lenders to maintain adequate liquidity buffers to meet unexpected withdrawals. Banks have asked the RBI to include bond borrowings in the CD ratio calculation, which would help bring it below 80%. Currently, only deposits and certificates of deposit are considered for computing the ratio. Typically, out of every ₹100 in deposits, banks set aside ₹3 for cash reserve requirements, ₹18 for statutory reserves and hold ₹3-5 in additional government securities to comply with liquidity coverage rules. After these allocations, the amount available for lending works out to ₹75-76.126551268 The elevated CD ratio reflects challenges in mobilising deposits as investors seek higher returns elsewhere. Small savings schemes currently offer 7.10% for three-year deposits, compared with 6.40-6.50% offered by banks. The challenge intensified after the RBI cut its policy rate by 125 basis points since February 2025, prompting lenders to reduce deposit rates. The weighted average rate on outstanding term deposits fell to 6.73%, the lowest since September 2023, while fresh deposits averaged 5.59%, the lowest since October 2022. Deposit mobilisation has lagged credit growth. Bank credit rose 11.4% in 2025, while deposits grew 10.1%. Outstanding deposits were ₹248.5 lakh crore, while credit was ₹202 lakh crore as of December 31. "To overcome this challenge, banks will have to explore alternative sources such as bond issuance to finance credit growth," said Saurabh Bhalerao, associate director and head of BFSI Research at Care Ratings. "The pace of investments in government securities has slowed, implying banks are deploying funds for lending," he added. Fresh investments in government securities dropped to ₹1.87 lakh crore on a YTD basis until December, compared with ₹4.89 lakh crore in the same period a year earlier. "Ideally, one should look at a broader denominator that includes borrowings and owned funds when calculating the CD ratio," Bank of Baroda chief economist Madan Sabnavis said. "That said, a high CD ratio indicates efficient use of resources, as the number is derived after meeting CRR, SLR and LCR requirements," he noted. Banks have maintained nearly 8% higher SLR, mostly to comply with LCR regulations. "Looking ahead, the ratio is expected to moderate as deposit growth picks up, supported by substantial liquidity infusion by the RBI," a senior bank official said. "Durable liquidity infusion has pushed reserve money growth to 9.4% (adjusted for CRR cut) as of December 2025, from 6% a year earlier," the official said.