Credit growth in India’s banking system accelerated to about 20% year-on-year in the June 2026 quarter, its strongest pace in more than four years, while deposit mobilisation remained weaker, keeping the system-wide loan-to-deposit ratio (LDR) close to a decade high, ANI reported, citing a Bernstein report.

The reported 20% growth was partly influenced by changes to fortnightly reporting requirements introduced in December 2025. After adjusting for the impact of these changes, Bernstein estimates underlying credit growth at about 18%.

Industrial lending benefited from a significant increase in borrowing by large companies, which account for nearly 70% of total industrial credit. Lending to micro, small and medium enterprises also continued to expand at a healthy pace.

Services credit strengthened as well, with bank lending to NBFCs rising by more than 30% in recent months. Higher borrowing costs in the bond market have encouraged NBFCs to turn increasingly to banks for funding.

The improvement in credit growth has been broad-based, although the strongest acceleration has been seen in industrial and services lending.

The faster expansion in loans compared with deposits has raised concerns about banks’ funding position. While deposit growth has picked up in recent months, it continues to trail credit growth, leaving the system-wide LDR near decade-high levels.

Despite elevated LDRs, bank margins have remained broadly stable. Rates on fresh loans and term deposits have largely stabilised, while lower certificate of deposit rates and reduced issuance have provided some relief on funding costs.

Bernstein noted that the spread between yields on new loans and term-deposit rates remains wider than the corresponding spread across existing loan and deposit books, suggesting that incremental loan growth continues to support margins. It said that lending momentum remained robust in July as well, with the recovery broadening across sectors and particularly strong growth in industrial and services credit. Increased borrowing by large companies and rising funding requirements among non-banking financial companies (NBFCs) were key contributors.

The brokerage expects India’s banking sector to sustain healthy growth in fiscal 2026-27, helped by favourable liquidity conditions and an improvement in nominal credit growth. However, it warned that potential monetary or regulatory tightening later in the year could moderate the pace of expansion.