A structural shift in balance sheet is on across Indian banks. On the asset side, lenders are increasingly generating more money from “non-interest income” or other income sources, and on the liabilities side, the focus appears to be more on tapping bond markets rather than relying on deposits to fund credit growth.

The shift away from deposits on the liabilities side is natural. As countries grow in size, household savings get parked in instruments that provide better returns, such as mutual funds, pension funds, insurance funds, small savings scheme, government bonds, State development loans and, more recently, sovereign gold bonds. The largest global lenders do not rely on deposits to fund their loan growth or investment book.

CD ratio

According to RBI data compiled by CareEdge Ratings, the credit-deposit (CD) ratio of banks touched an all-time high of 82.2 per cent for the second consecutive fortnight ending January 15. The CD ratio indicates the share of a bank’s loans that are funded by deposits. In the fortnight ended January 15, both deposits and credit fell sequentially, with deposits declining faster than credit, widening the gap to 250 basis points (bps).

Apart from the shifting of household savings to other higher yielding products, the rating agency pointed out that the increase in short-term bond rates also likely prompted a partial reallocation of bulk deposits to market-linked instruments. It is in this context that bankers and the central bank no longer view the CD ratio as the core metric to judge a bank’s health or liquidity profile. They are, instead, monitoring the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) to assess bank liquidity.

LCR and NSFR are Basel-III regulatory tools designed to ensure banks maintain adequate liquidity to survive financial distress. LCR measures short-term (30-day) resilience against cash outflows, while NSFR ensures long-term (one-year) funding stability for assets, both requiring a ratio of at least 100 per cent.

LCR, NSFR

RBI Governor Sanjay Malhotra recently said that during periods when credit grows faster than deposits, the CD ratio tends to rise and vice versa.

“But I may mention that, for us, it is not the CD ratio which is important. What is important is liquidity. There is NSFR for medium-term liquidity... LCR for the immediate or one-month liquidity that we are looking at. Both — for banks, as well as non-bank financial companies — are at very comfortable levels. So, there is no issue over there,” he said. This is perhaps for the first time that the regulator has acknowledged LCR and NSFR as more important metrics than the CD ratio.

CS Setty, chairman of the country’s largest lender, State Bank of India (SBI), agreed with the governor, saying the ongoing shift in financial savings is here to stay and, structurally, banks need to re-look their balance sheet composition.

“Today, most of us (banks) don’t reach out to market because it is more expensive than deposits. Today, if you want to borrow, it is mostly in the secured market. But we need to have depth in the debt capital market, where banks will be able to access bonds if not at lower than deposit cost, then at least equivalent to it. That will give banks the flexibility to structure their balance sheet,” Setty said.

“I agree with the governor’s observation that the important considerations for a bank’s health are solvency and liquidity. These liquidity ratios, LCR and NSFR, are very strongly monitored by the RBI and banks,” he added.

Rush for deposits

Sashidhar Jagdishan, MD and CEO, HDFC Bank, says the CD ratio is “not necessarily on the radar from a regulatory perspective”. However, the bank will continue on a downward glide path for the CD ratio. HDFC Bank’s CD ratio peaked at around 110 per cent when it absorbed erstwhile HDFC, and it remained at around 100 per cent in the quarter ended December 2025.

YES Bank MD and CEO Prashant Kumar says deposit growth has been lagging credit growth for a few years now. For India to achieve a nominal GDP growth rate of 10 per cent, credit must grow at 13-15 per cent at least, he says. Therefore, banks must find ways to grow deposits. They can either raise the deposit rates, which will dent profitability, or seek tax parity for deposits with other market instruments. The third option would be to look at alternative sources for liability growth, he says.

Tailpiece

Vivek Iyer, Partner and Financial Services Risk Leader, Grant Thornton Bharat, says that since the market depth of the Indian economy is limited to the fixed income asset classes, which translates into higher cost of funds, deposit as a liability product will remain the most viable option for banks for the next few years.

“Structural reforms to reduce capital cost in the long term are a function of many reforms panning out operationally on the ground, which is still five years away, and we should definitely consider a metric to capture the same additionally, instead of tweaking the CD ratio. This will help the government gauge how the market is evolving by looking at both ratios,” he says.

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Published on February 16, 2026