Deposit Stress Shadows NBFC Growth In March Quarter

Banks closed the March 2026 quarter with strong loan demand but weak deposit traction, leaving NBFCs exposed to tighter funding lines and higher borrowing costs.

India’s banking sector entered the final stretch of FY26 with credit demand still holding up, but deposits did not keep pace. That gap is now shaping the funding environment for shadow banks. Banks can continue lending for some time, but slower liability growth pushes up competition for money and keeps wholesale funding tight. 

Mint reported on 6 April 2026 that among 19 banks reviewed through early business updates, only a few narrowed the loan-deposit gap in the March quarter. That has kept the spotlight on funding quality rather than on demand.

Credit Growth Outruns Deposits Across The Banking System

The pressure is visible in system-level data. CARE Ratings said in its 16 March 2026 report, Gap in Credit Offtake and Deposit Growth Widens in Q3FY26, that scheduled commercial bank credit grew 12.2% year-on-year as of 31 December 2025, while deposits rose 10.2%. 

The credit-deposit ratio climbed to a record 82.7%. The gap between credit growth and deposit growth widened to 2.0% from 0.9% a year earlier.

Read More - India’s Loan-To-Deposit Ratio
 

That fall in CASA shows banks are relying more on costlier term deposits. For NBFCs, this usually means tougher borrowing conditions because they depend more on bank lines, market debt and securitisation than on low-cost retail deposits.

HDFC Bank Stands Out As Most Lenders Struggle To Close The Gap

Mint’s report dated 6 April 2026 showed that HDFC Bank was the clear exception in Q4 FY26. Its deposits rose 14.4% year-on-year, ahead of 12.0% loan growth. Bank of Baroda improved too, but loans still rose faster than deposits there. 

Other lenders continued to show the same imbalance. That means growth has not broken, but funding remains uneven across the system.

Previous Developments On This

The funding strain has been building for months. CARE Ratings said outstanding credit reached ₹198.3 lakh crore by end-December 2025, while deposits stood at ₹239.5 lakh crore. It also said CASA deposits grew only 8.8%, below overall deposit growth. 

LoansJagat, in a report dated 28 November 2025, had already flagged FY26 credit growth at 11.5% to 12.5%, driven by housing, MSME and agriculture, even as deposit mobilisation stayed under watch.
 
Also Read -  CASA Ratio
 

ICRA also said retail NBFC AUM had already grown 17% year-on-year in H1 FY26, with gold loans leading and vehicle finance plus personal and consumer loans helped by stronger domestic demand. 

Statements By Stakeholders

CARE Ratings said the credit-deposit gap widened further in Q3 FY26. ICRA said retail-focused NBFCs should still post 17% to 19% growth in FY26. 

Business Today, citing Bernstein on 6 April 2026, said HDFC Bank’s deposit traction helped ease concerns around its funding profile.

Conclusion

Loan demand is still healthy, but deposit weakness is now shaping the pace and cost of growth. For shadow banks, FY26 growth may stay solid, but funding will stay selective and pricier.